Being Poetic

Just a change from usual heavy posts. Something creative.
A Poem dedicated to all moms but written specially for my mom......
                                   Maa is the best

Being Poetic

My Poem penning down aspirations of a women. It expresses what my aspirations are and I believe of most women are.
Read it....... :)

Special Status and Bihar

A lot has been written and said about giving special status to Bihar. This issue has garnered so much attention that it might even be the game changer in who capitalizes over votes from Bihar in next general election. While personally I don't support the demand of special status for Bihar in its present form and maintain that it can proceed even without that. However, this article has less to do with this stand of mine and more to do with clarifying some questions Mr. Swaminathan Aiyar raised in his article "Bihar: Champion athlete does not need steroids" raised. 

Mr. Aiyar insists that Bihar's demand of special status is like:

                           " a top athlete demanding steroids to keep sprinting. 

                             No Olympics allows this, not even if an athlete is     

                             poor or historically deprived."

What Mr. Aiyar overlooks is that economic growth is not a competition where all of Indian states are competing to win a gold medal. It is more like education for overall development and as far as I know if a student is weak in studies teachers are always requested to take special care of those students. Bihar is just demanding that special care.

Next Mr. Aiyar talks of population explosion:

                             "Bihar has long been among the worst states 

                             in family planning and population growth.................

                             This has depressed its per capita income. But 

                             can this be a reason to demand more cash, which

                             will come at the expense of states that have controlled

                             their populations and hence improved per capita income? 

                             Should Tamil Nadu and Kerala subsidise Bihar's 

                             bedroom profligacy?"

What a beautiful choice of word by an economist "Bihar's bedroom profligacy". I guess there is nothing like the demographic transition theory and the fact that while most states in India moved to second stage of demographic transition due to economic development Bihar is still stuck in first stage due to underdevelopment. Bihar is underdeveloped and that is why still facing high population growth rate. What is so amazing or un understandable in it. Students of economics fill pages while explaining India's population explosion, how is it different from that.

Next he asks:

                              " Bihar provides only 2.8 per cent of national income 

                                but gets 8.6 per cent of central funds.That's misleading, 

                                says Bihar: we account for 8.8 per cent of the population, 

                                and it is the poorest 8 per cent, so we deserve more. 

                                Once again the question arises, should successful family 

                                planners have to pay more to the unsuccessful?"

What happened to the theory of vicious circle of poverty and talks of human development. I also didn't know that taxes were quid pro quo. I always thought taxes were a means of redistribution and rich are taxed so that state can finance its welfare spending. In order to break the vicious circle of poverty we need external help. Isn't that the reason we keep bugging the world bank for finance. To add to that I think we have stopped taking into account how the policy of freight equalization actually subsidized the same successful family planners. Let us look at how many mineral rich states with no developed port are developed state. Let me take a guess..... none. Why is the mineral rich region of India sinking in poverty when actually logic says they should be the place where factories should have been. There was a freight equalization policy but, no policy to negate the port advantage. When it came to minerals it was national wealth, when it was appropriated the principles of federation became irrelevant. Is it the case.

One more thing at the end of the day if Bihar remains poor then 8.8% of the country's population will be deprived of what is called economic development. With underdevelopment comes a lot of trouble and even if the state is the one facing it the most, nation too becomes a victim of it. So, unless we are planning to ignore that 8% of the population Bihar definitely will need additional funds to kick start its economy and yes that fund has to come from outside only as Bihar doesn't have enough of it.

All this doesn't mean I support Bihar's demand for special status but, I do believe Bihar needs special attention instead of small lollipops to develop. It hurt when such a good journalist says such hurtful thinks about people of a state, no matter how much sugarcoating is done by citing recent achievements in the same article. However I do believe that govt. should revisit the special status policy and may be look into doing something region wise as Finance minister talked in his speech this budget session. That way when funds are disbursed they are for underdeveloped regions and go there only. One more benefit will be that people in a particular region will not feel alienated and need not demand separate state to get govt. funds. Issues of Telangana and Vidarbha might be better addressed if we had special status for underdeveloped regions. So that funds meant for them went their only.

.

Where State Ought To Be

On its independence India decided to be a social welfare state. Such states by nature take upon themselves extensive functions, to bridge the investment gap created by private sector, for public good. However, such extensive involvement while desirable in a nascent state where private sector footprint is almost absent becomes fatal for economic stability as the nation progresses forward. Apart from this, such extensive involvement results in a less intensive engagement in more desirable sectors.
Indian govt. today has become 'Jack of All Trades, Master of None'.Although the govt. started to pull back on its extensive involvement in the economy on the eve of 1991 reforms,  it still has mammoth presence in commercial activities. Govt. sells milk, butter, petroleum, food grains, minerals, electricity and what not. Thank God it no longer sells bread. While the rationale behind such extensive engagement is to male the economy strong and ensure public good. It is doing more harm to economy in general and 'aam aadmi' in particular as ever increasing fiscal deficit is pouring inflation and feeding Current Account deficit. The stability of economy and prospects of growth are thus, hanging by a thread.
On the other hand, such extensive engagement means that several sectors like social infrastructure don't get enough govt. attention. Public expenditure on health care in India is only 1.4% of GDP. This is very low and a reason why out of pocket expenditure (private expenditure on health) was appx. 86% of total expenditure on health. This means that people have to spend a lot out of their pocket for health care. This hurt especially because around 25% of India lives below poverty line. How are they expected to pay from their pocket for healthcare. So, Health care is a sector where govt. should ramp up its spending ensuring both better preventive and curative healthcare. This will not only improve quality of life in country but, will also add to productivity thus, contributing to economic development.
Second sector that needs govt's urgent attention is education. Government's expenditure on education stood at 3.85 per cent of gross domestic product (GDP) in 2009-10. Education is empowerment and it single handed can bring out India's bottom of the pyramid mass from age of darkness and isolation thus, joining them to mainstream of progress. India still is struggling to achieve universal primary education while in order to take benefit of our demographic dividend we need skilled labor force that means not only universal primary education but, widespread professional training and technical education. This is where the govt. needs to focus. Although Education is state subject, central govt. can definitely take facilitating steps, increase financial support, setup better educational institutes and do a lot more. It should ensure that quality education is not a prerogative of elites rather it is available to all.

Third sector that requires govt. immediate attention is infrastructure and this sector has hijacked the limelight for quite a few years now. Still, the attention paid is not proving enough and we have huge infrastructure deficit. Be it transport or power generation and now even communication where we were growing leaps and bounds. These sectors need more than just govt. investment. These are the sectors where private sector will invest but, we need policy clarity and a vision for growth. So, with active private sector involvement govt. can reduce its investment in these sectors and use that money for education and health.

In my opinion what govt. should do is to try to wrap up its extensive involvement in sectors where the private sector is ever ready to fill the deficit like heavy industries, power generation and be more intensively involved in sectors where private sector can't do its due to nation's benefit like health, education, poverty eradication etc.

P.S.Looking forward to the next budget for economic engineering of FM and what he does to balance the need to reduce fiscal deficit with the need to be populist keeping in eye the General Elections 2014.

Takeaways from RBI's 3rd Quarter Review of Monetary Policy

RBI's third quarter review of monetary policy for 2012-13 came out on 29th January 2013. This is an attempt at reviewing RBI's review. The review saw Indian economy as slowing and hence RBI further reduced its growth forecast for the FY 2013 from 5.8% to 5.5%. This is a result of a no. of factors including a slowdown of investment, a weakening of consumer spending, persistent inflation and a recovering but still gloomy global economy with threats looming from all sides. While it seems RBI is finally comfortable with the inflation situation as the review mentioned inflation to be slowing down and stabilizing, the central bank is still cautious about the twin deficit. One area of concern that was highlighted in the report was slow growth of money supply despite RBI's easing of CRR a no. of times. This may be because of hawkish attitude of banks due to growing NPAs but, it definitely is one of the reasons of slowing growth.

As action measure RBI reduced its policy rate from 8.0% to 7.75% with immediate effect and reduced CRR by 25 basis points and it stands  at 4% of NDTL (Net Demand and Time Liabilities) from fortnight starting 9th February 2013. A no. of bankers and corporate executives have termed this action as per their prediction. However, most of them predicted rather demanded rate cut before every review and even the govt. had joined the chorus in last review. In fact this is one of the reviews before which RBI was least bugged to grace economy with rate cut. I suppose the governor with his tough stance had made clear that rates would be cut only when RBI was comfortable on inflation front. So, this rate cut fulfills expectations more than predictions.

Economic Times editorial on 30th January, 2013 mentions Central bank to be at odds with itself. This is so because RBI eased rates even as the CPI based inflation increased to 10.5% in December 2012. As I interpret it RBI gave a rate cut as it sees inflation as slowing down and stabilizing and so it wants to signal its inclination towards promoting Growth. Growth and Stabilization are twin objectives of Central Banks in developing countries. RBI now seems comfortable on inflation front and that is why it is focusing on growth front. CPI based inflation was mainly fueled by food inflation, a spur that has a lot to do with supply related bottlenecks that can't be guided via money supply. However, Core inflation showed stabilizing signs as gauged by both CPI and WPI and that is the reason RBI went ahead with rate cut to accommodate growth concerns. 

One of the major objective of RBI's monetary policy stance is to anchor medium term inflation expectation  through credible action and given the stubbornness it showed by refusing to reduce rates when growth was slowing, its credibility has been established. Markets know that this may not be start of an easing cycle if concerns regarding twin deficits are not properly addressed. This easing is only because inflation seems to stabilize for now. This will do well to anchor inflation expectation towards lower level despite rate cut if other economic variables remain under control. 

Other concern that led to rate cut was slow growth of money supply. Liquidity conditions have remained tight despite RBI's reduction of CRR as well as its open market operations. This has restricted credit flow and hence negatively impacted investment. Thus, impacting growth adversely. In an environment where banks are hawkish a rate cut will give them reason to increase credit flow. On the other hand CRR cut will ease liquidity pressure by pumping 180 billion of primary liquidity into system. Thus, both policy actions together will help in improving investment scenario.

RBI has initiated the play and set the stage for govt. to play its part via Annual Budget. Let us hope something magical comes from fin min's briefcase to revive the economy.

Happy New Year :)

Fiscal Cliff: The New Guy in Economic Town

Fiscal Cliff is the latest buzz word in US and if it is bothering US the whole world has to be obsessed with it and so it it. The US economists are debating how should the govt deal with it and the Republicans are trying to use it to cut a bargain with Mr. Obama. What is this fiscal cliff that has stolen the attention away from EU and its economic mess. It refers to the expiry of massive tax cut introduced during Bush administration as well of a no. of concessions and stimulus measures introduced during Obama regime in January 2013. Plus the deficit reduction plan as part of the debt ceiling deal struck in August 2011 are scheduled to start from January 2013. So US with its fiscal cliff is eyeing too massive- too soon deficit reduction of a around $600 billion.

What is interesting is that as per a survey a large chunk of US population believes that fiscal cliff will result in deficit increase and they can't be blamed for this misinterpretation. They are under this impression as the same deficit hawks who were crying over USA's 1.1 trillion $ deficit are now crying most loudly over fiscal cliff. Is it because suddenly they have realized that deficit reduction can be disastrous for a depressed economy or because the largest chunk of deficit reduction in this fiscal cliff  comes from expiration of tax cut for the ultra rich. Since they are demanding a deal on fiscal cliff in which they want to extend the tax cut the reason has to be the latter one. Now the question is why do they believe they can have a deal and president Obama will give in to their demands. It is because along side the tax cut on rich a no. of stimulus measures of Obama regime are also expiring as well as the deficit reduction plan that will cut social security spending are also scheduled to set in. This will heard the middle and low class who are already hurting due to depressed economy. So, Republicans are sure president Obama will make a deal with them to postpone the execution of debt ceiling deal.

Both the sides are proposing deals. While Republicans want a rise in medicare age as well as reduction in social security spending along side the extension of Bush era tax cut to clinch a deal. On the other hand President Obama is keen on continuing the social security spending, implementing health care scheme and extending Bush era tax cut to upper middle class but, insists that wealthiest of Americans should pay proportionately. With negotiations going on vigorously a deal is expected in few days i.e. before the cliff sets in.

The big worry over fiscal cliff is because with US economy already recovering meekly any cut in spending will make the situation worse. Multipliers work both way and now even IMF acknowledged in its latest world economic outlook that multiplier effect is larger than it earlier anticipated in the depressed economies i.e. every spending cut depresses the economy further by more than the amount of cut. This is not what the world expects at this point when  Europe is already struggling and the drivers of growth i.e. developing countries are hanging to growth by a straw. So, US policy makers need to get over with negotiations over fiscal cliff and cut a deal that saves the economy from going into downward spiral. Its not that US does not need to move towards lesser debt and deficit it is just that this is not the best time for deficit reduction. During depression govt doesn't crowd out private investment rather it encourages it. So, austerity should be saved for boom and let prosperity return to world economy.

Being Poetic

The ruins of Nalanda University tell a story of glory & culture and this glorious chapter of our history deserves a revival. My visit of 2006 to these ruins inspired a poem. Here it is :)

नालंदा विश्वविद्यालय का खंडहर 

The Show is Over, Let Us Move to Business Now

For Past one year or so India's politico-economic debate has been centered around FDI in retail as if it is the real "Game Changer" for Indian economy. Precious and Costly days of parliamentary sessions have been wasted on this executive decision which definitely deserved an honest debate but not a long drama. Finally the show is over. Lok Sabha today voted for FDI in retail under there special rule and thanks to the politically logical (difficult to be justified if you are not a politician ) walkout by few parties govt. survived the vote and was saved from humiliation. There is nothing more the opposition can do on this matter and now it should allow the public to take over. When the nation goes to poll in 2014 it will decide whether or not to support a wave of FDIs that have been introduced. 2014 is not far away. I doubt if much FDI in multi brand retail will come by that time. If the public gives its verdict for the opposition it can reverse the decision or at least make stronger regulations to save their beloved 'Junta'. I'm saying so because the Pepsi and McDonald that Ms. Sushma Swaraj (leader of opposition in LS) condemned were there expanding during NDA regime too. However, I don't remember any specific procurement regulation being enacted. Moreover, there were factual errors in the speech against FDI in retail.

Source: Economic Times article, 'FDI debate leaves a bitter taste for McDonald's, Pepsi and KFC' 5th December 2012

So, both opposition and govt. used facts to their convenience. Anyways my point is FDI in multi brand retail has garnered enough lime light. It is time to let go and grab a new issue.

Now that opposition's demand of voting has been accepted and voting over we should hope that they will allow the house to conduct its normal business and do what it is responsible for i.e. legislating. A no. of legislative decisions are pending that have clouded the policy scenario in the country. As a result investors aren't sure of what to expect as future policy and this has brought investment to standstill. Industrial output is falling and agriculture keeps hovering around 2% growth rate. This is where we need the debates to be centered around and action being taken. Land acquisition bill if passed will give much clarity to new investors and relief to industrialists with pending acquisitions. Similarly a clear cut policy on allocation of natural resources will help industry shed the costly coal import when domestic coal is lying untapped. Electricity consumption in country is lowest in the world not because there are not consumers but, because enough is not being produced, in this scenario power sector reforms will definitely do miracles for ailing economy. We all know govt. gives huge subsidy on fertilizers but, few understand that Indian agriculture is suffering due to Urea subsidy, a reform here will be welcome. Govt. is driving MSP constantly upwards and procuring in huge amounts. Still, only food prices are going up and the money is not showing in farmer's bank account. FCI's procurement is well above its storage capacity and grain is being wasted when millions are starving. A reform in APMC Act and provisions to link free markets nearer to farmers will be welcome move.

Above were just glimpses of where we stand and why is Indian economy slowing down despite all growth drivers being intact. Overall we need a no. of ground level reforms that can change the basic structure of Indian economy and synchronize its employment and income pattern. Most of what has been happening in names of reform has been attention seeking small tweaks and since opposition thinks it lost on attention seeking it makes those tweaks big issue when bigger issues are pending, I hope some of the important acts are passed in the winter session and the economy ends FY 2012-13 on a hopeful note.

Some Thoughts on the FM's 'Game Changer'

I'm definitely late for commenting on the ambitious Direct Cash Transfer scheme that the UPA is eyeing to implement from January 2013 and that was called a 'Game Changer' by Mr. P. Chidambram, our Finance Minister a few days ago . A lot has already been said in following days. Even the election commission has taken a note of it and asked the govt. why it announced such a populist plan when model code of conduct for Gujarat elections is in place. So, it is certified that the scheme is populist as endorsed by EC, opposition and definitely Congress. It has the capacity to be popular means it will influence life of millions that too in a positive way. Congress is hoping to achieve from this scheme what it achieved form MNREGA in last general election; a reign on anti incumbency and return of power. Honestly speaking, it has the power to do so given that the govt. is able to achieve exceptional administrative efficiency to implement it in enough no. of districts by the time of general elections in 2014 so that it has a shining report card to show. There is nothing wrong with the govt. going the populist way as every ruling party uses the welfare state as a tool to present itself as a welfare oriented party. So, the scheme is a definite game changer as far as electoral landscape for 2014 elections is concerned. Now, the question that remains is if it is a 'Game Changer' for the welfare landscape in India.

Direct Cash Transfer aims at depositing direct cash in beneficiary's Aadhar linked bank account for welfare programs. Initially it will be implemented as a pilot project in 51 districts from January 2013 and around 29 welfare programs will be part of it. DCT aims at eliminating duplication of efforts, fake beneficiaries, commissions that the middle men in the distribution process eat up and a lot of administrative complexities. While elimination of administrative complexities and fake beneficiaries will save money for the govt., elimination of middle men in welfare amounts distribution will reduce corruption and increase the amount that reaches the beneficiaries. 

However, a lot needs to be done before DCT can be implemented for all welfare schemes. Even the govt. has accepted that linking food subsidy to DCT will be complex. The biggest problem is identification of beneficiary. In India it is a proven fact that many poor are not part of BPL list and many not so poor influentials are part of the list. If all schemes are delivered in form of DCT the left outs will be completely out of the welfare net. Presently a no. of schemes like education, health care, subsidized electricity, water etc. being universal, they at least have some access to the welfare net. 

Then the question arises, it is OK to give direct cash to poor but are we ready to eliminate subsidies completely from education, electricity, water which are merit goods and presently being provided by public sector at rates much lower than cost price. Instead of gradual increase in rates and their alignment to market if subsidies are eliminated at once it will create a definite social unrest. So, these goods also fall out of DCT scheme at present. 

Misdirection of the cash by one family member in activities like gambling and liquor is also an issue that needs to be thought. That is why not all welfare services can be replaced by Cash. Instead of having public schools giving money to parents to send children in private schools is not a solution. Public schools are needed, universities are needed and we need to keep them running.

Thus, while DCT is good for all those schemes in which already cash is being paid out as instead of going through a distribution channel of govt. agents it will directly go to beneficiary's account. It can definitely not be one solution fits all and state has to keep on delivering public goods in other forms too. DCT is one way however additional measures need to be chalked out to ensure public goods are delivered efficiently at low cost. Before making DCT the flagship of its welfare schemes and starting to eliminate other welfare schemes govt. must make sure it has a plan in place for targeting beneficiaries and a phase wise approach of linking prices of subsidized goods to the market determined rate. 

The Reform Controversy

First thing first, I applaud the PM for coming out on national television in support of his policies and clarifying them to the public. In my memory he is the first one to do so breaking the long line of PM's who have found it suitable to address the nation on television only on republic days. This is in spite of the fact that he is not a very good speaker and we have had some very eminent speakers in past as PM. This may be a political rhetoric but, I hope it starts a good tradition of communicating with the public through the most mass form of mass media on policy issues.

Now to the questions that have been focus of all debates in the country for past one week- the reforms. The question is are they too little, too late, why did the govt. rush for them in two days, are they going to hurt aam aadmi and so on so forth. 

Are the Reforms Too little- Too Late:

They definitely are too late but, better late than never. Indian economy has been slowing down for past 3-4 quarters. Fundamentals like fiscal deficit, current account deficit have been weaker for many years now. A no. of policy logjams and red tape has kept contribution of industries in GDP stagnant when they should be growing to take over the space agriculture is vacating so that they could shoulder agriculture's responsibility of employment generation. So, what have been done now should definitely have been done earlier. However, politics has its own compulsions and keeping aside populism is a tough call resorted to only when stakes are as high as make or break situation. This definitely is one such situation.

Now the question, if they are too little. Compared to the restructuring Indian economy requires the reforms definitely are minuscule but, lets hope they are just the beginning. As is being anticipated, reforms in pension scheme, FDI in insurance, land reforms bill are all round the corner. With the ever 'NO' saying 'Didi' out of picture the hopes are that govt. will push for more reforms as presently political logic says that for a change economics is the one dictating it. Govt. can escape fire only if it puts economy back on track before next general elections which at present seem to be held on their scheduled  time in 2014 only.

Why the Rush:

The way govt. introduced these reforms in a span of two days put the question: what target as the govt. chasing with these reforms. Although the reforms are too late but, for the time being the timing couldn't have been apt. Rupee depreciation was a major issue hurting India. Both our exports and imports are inelastic which means while depreciation raises our import bill it doesn't boost our exports much. Hence, it is adding to our current account deficit. With QE3 announce in US few days back and ECB ready to make unlimited bond purchases to help Euro Zone liquidity is ample in international market. This is the time when revived investor confidence can do wonders. Govt. just took a small step in reforms front and the Rupee strengthening is seeming round the corner with sensex already soaring high. 

Apart from this we were staring a sure downgrade in sovereign rating which would have meant further exit of FIIs from India not only because they would have turned bearish but because their domestic regulations would have mandated this. This would have led to further depreciation and a much larger current account deficit. So, this rush is just an attempt to avert a crisis that would have followed. 

Are They Going to Hurt Aam Admi:

It definitely hurt when you taken out of your comfort zone even if you can afford it. Most of Indian middle class can afford to buy its own cylinders and I doubt that Indian poor even use LPG forget about 6 LPG a year. Apart from this, diesel price hike of Rs.5 will definitely fuel some inflation in short run but, if this means shrinking fiscal deficit then in the medium run it can be one factor actually curbing inflation. Although there is a big doubt in it because the subsidy oil subsidy bill will still be around Rs. 160,000 crore. FDI in aviation is not much of common man's concerns although if it improves the industry and creates job it will definitely help common man. FDI in retail, the magical policy that has been stealing the show as if it is a magical wand that will make all Indian problems disappear ( the pro view) or make all Indian kiranawalas disappear (the con view). The logic says it will do none of the above. It definitely is one of the steps that will help infrastructure creation in Indian agriculture but, it will take time to bear fruit. On the other hand since approvals will be made on case to case basis and that too only big cities are eligible makes sure Kiranawalas will stay. Anyways Kiranawalas are the ones knowing to do business the Indian way and they are here to stay. So, their disappearance is an equally distant dream. So, apart from diesel price hike that will be a definite hurt but, seems a bitter pill that needs to be taken the reforms are not going to be much hurtful.

The Verdict

Since the govt. seems pretty comfortable with its majority intact the popular verdict will be out in 2014 only. However, till then it is a definite thumbs up to the govt. from economic point of view with a hope that they continue.The Indian economy needs a lot more than piecemeal reforms to grow at a rate that will actually pull out its masses from abject poverty. 

Need to Make Peace With the Social Media

Mass Media has always been the agent of change, the forerunner of the right to freedom of expression. To the list of Print and electronic media has been added Social media which seems most effective in stirring revolution. What Print and electronic media had been trying for decades social media has achieved in years. It has upheld the right to free expression in the sarcastic democracy of China , it made possible the Arab Spring thus, helping the rise of masses against autocratic dictators. However, the rise of social media has brought its own challenges as was earlier witnessed by England during the London Riots of 2011 and now have been witnessed by India since August 15, 2012.

Following the Kokrajahar Violence in Assam in the month of July and early August sinister SMSs started making rounds in cities of Bangalore, Pune, Hyderabad, Chennai etc. that Muslims were gearing up to take revenge for the Assam violence after Eid. Fueled by these rumors August 15th, 16th and 17th witnessed mass exodus of north east population from these cities to their hometowns. Rough estimates say around 40,000 people fled from these cities in the three days. Railways had to run special trains to the ever increasing crowd on railway stations. What was started by SMSs was furthered by social networking sites and other websites where images of Tibet earthquake and Gujarat riots were morphed and posted as pictures of Assam Riots. 

All this had been going on before 15th August and exodus started on 15th August, but the govt. woke up only on 17th August, that too just to release an advisory to social networking sites and ISPs to ban inflammatory content on priority basis without giving any specific details. This made ISPs judges of what inflammatory content was and hence there was no standard control on inflammatory contents and they kept making rounds on internet. Later govt. gave ISPs a list of web addresses and accounts to be blocked but, the list was ill researched. Many of the web addresses didn't exist and a no. of accounts that featured in the list were unrelated to the inflammatory content. This gave rise to another controversy in midst of an ongoing crisis. Govt. attempt looked like a move to censor its critics.

Thus, the challenges were posed by social media in handling law and order and govt. was correct on its standing of limiting right to expression to establish social order, even 'International Covenant on Civil and Political Rights' to which India is a signatory gives govt. this right. However, it reacted too late and did too little that too in an ill directed manner. Social media poses lots of challenges as it has immense possibilities of mobilizing public opinion. This same potential of social media should make it a darling of govt. as it can help it calm the public and reach out to it in times of crisis without making much effort.

This is age of social networking and any attempt to censor it will be met by large scale social protest as will go into public as attack on freedom of expression. Hence, Governments should learn to live with it. Instead of complaining about its recklessness govt. should use its reach to connect with the new generation that somehow connects very less with the democratic process of India.  Social media should be proactively monitored and steps should be taken beforehand to stop a situation from turning into a crises.

From India Shining to India Declining

Okay! first thing first 'India Declining' is a phrase I have used less to reflect my views on current state of Indian economy and more for its poetic touch to the title. However, the title of the post does summarize the Indian growth story of past two decades to a great extent. We liberalized in 1991 and left behind the 'Hindu Rate of Growth' to post miraculous growth rates that averaged 7.4% from 2000 to 2012 including the golden years of 2006, 2007 and 2008 when we posted a above 9% growth rate. With population growth rate of 1.9% or less and inflation hovering around the RBI comfort zone of 5%, it meant that we were growing in real terms and benefits of growth were felt in the buoyant economy. We did weather off the initial phase of 2007 financial crisis pretty well with help of govt. stimulus and RBI's monetary expansion but, then things took a U-turn. 

When everyone was expecting the world economy to normalize the world leaders all of a sudden were reminded of moral economics and balanced budget. So, a consensus to foster fiscal discipline was generated which had been ironically ignored in the boom years and the market fearing a premature withdrawal of stimulus went back to panic mode. The European Crisis that now seems never ending too started making its presence felt and the recession was back. This time with bigger threats and a lot more at stake. Weathering off of the 1st phase of crisis had already burdened govt. finances (fiscal deficit reaching 6.6% f GDP in 2009) and the continued recession challenged the fire power of fiscal policy to stimulate the economy. This exposed the structural weaknesses in Indian economy and it was time for an anti-climax in the 'India Shining story'. 

Since 2010 India's growth indicators have been worsening and woes increasing. Corruption, Stalled reforms, persistent inflation, high oil prices and to icing on the cake the falling Rupee have all hurt India's case simultaneously. India's GDP growth rate has been persistently falling for past 8 quarters and it fell to 5.3% in Jan-March 2012 quarter. Current account deficit for the year 2011-12 was 4.2% higher than the crisis year of 1991. Fiscal deficit was 5.1% of GDP in 2011-12 and is expected to be 5.5% in 2012-13 as per budget estimates. Rupee has already hit an all time low of 56.42 per US$ before showing signs of recovery. Investor confidence is low and interest rates high. Inflation as per WPI is hovering around 7% and CPI is around 10%. Thus, economic health of the nation is threatened. Adding to the woes are rampant corruption, ever increasing scandals, separatist elements, maoist violence. Add all these and we are ready to script a crisis.

The question that now arises is if India is really declining. Yes India's economic indicators are worse and financial crisis can't be used as an excuse but, it definitely is one of the cause. We still have handled the situation better than most developing economies. However the ongoing economic situation in India is reminder of the fact that we can't sit back believing we are destined to success with our demographic dividend and other fancy stuff. We need reforms and we need them quick. They are the one's which will reengineer the environment for growth and boost up investor confidence. Changing finance ministers can create share market hype for a day or two but, what India needs is structural changes. Temporary Fixes to attract FDI, FII and boost investment may bring back growth rate to an extent but, there is no denying the fact that we are in a structural mess (ill distributed subsidy, low growth rate for largest employer i.e. agriculture, growth without infrastructure and so on). Although, this is not the end of India Shining but, we definitely have hit a roadblock and we need to work hard in the right direction to re script what can  be one great democratic growth story for a nation that once Churchill discarded as a nation destined to be lost in political squabbles.

The Distressed Economy

India was the economic discovery of the new millenium. Brilliant growth rate, shining corporate sector and promising reforms; all made India a wonder economy- an economy that bypassed the traditional growth path and outwitted all development economists by emerging as a service oriented economy without shading away the dependence on agriculture or strenghtening industries. However, since the advent of recessionary situation on global economic forefront the structural defects in Indian economy are showing up. Indian economy that was once all set to achieve the 11th plan target of 10% GDP growth rate had to be satisfied with 8% growth rate for the plan period. Even for the 12th plan we have targeted a growth rate of 9% only.

All this because of two major failures- 1st is the inability to shed excessive dependence on agricuture. It still provides livelihood to more than 60% of population and hence is a major determinant of consumption spending. This is one of the reasons why growth rate shrinks the moment agricuture seems in turmoil. Second reason is our inability to carry out mass industrialization so that more and more population can be provided livelihood through this. Agriculture needs a no. of structural changes ranging from land reforms to shift in cultivation pattern and only then can be the inflation that is hurting India's promising prospect be tamed. Industry on the other hand requires a no. of policy changes for growth stimulation. In this matter the political leadership in India has failed to continue with the promising reforms it started in 1990s. Land acquisition, power reformsone stage clearance, freedom from complex procedural hinderances, labour reforms all are being awaited to see industries grow.

India at the moment is showing dismal scenario because of policy paralysis. Investor sentiments are very low and corporate sector has slowed investment decisions to cope with the uncertain policy scenarios. However, with the amount of resources both natural and human the economy has brilliant prospects for growth and its only a matter of time before the policy changes will get going and start making impact on the economy. So, its not wise to dismiss India's growth prospects or the position India has gained in the world economic order. Although it is true that at the moment the economy is distressed but, considering the impacts of global uncertainity we can give the country some point for not being in turmoil and handling the recession well.

Suspension of FDI in Retail

"Decision not taken leads to expectation, a god decision reverted leads to frustration."

That's the case with recent FDI fiasco in India. Several govt. came and faded away in years after the economic liberalization of 1991. But, industry has just waited for policies to keep pace with the competition globalization poses. Reforms started in 1991 with an appreciable speed but, once Indian economy caught speed the process of economic reforms slowed down. Thus, policies have no kept pace with changing needs of economy. A no. of policy changes are on hold like reform in the companies act, land acquisition act, labor reforms, mining sector reforms, agricultural reforms etc. FDI in retail was one such reform that has been much awaited not only for its anticipated impact on multi-billion dollar retail industry of India but, also for the positive impact it is expected to have on the most neglected yet most influential sector of Indian economy i.e. agriculture (OK influence of agriculture on Indian economy is debatable but, that can be done later). 

Going forward with its agenda of economic reforms the UPA govt. allowed 51% FDI in multi brand retailing and 100% FDI in single brand retailing in late November 2011. However, opposition parties headed by BJP and even the members of the coalition govt. showed dissatisfaction with the decision citing the plight it will bring for millions of retailers in the country. Parliament's winter session which started last week could not be conducted due to constant hindrance by opposition and even supporting parties and as a result of lack of consensus the govt. had to put the decision on hold to focus on other issues and get parliament back into functioning mode.
The decision of FDI in retail had a no. of motives.
First, it would attract foreign capital to Indian economy which faces capital deficiency, thus helping in creation of productive assets.
Second, it would bring in foreign exchange at a time when Rupee is depreciating. Thus, arresting some slide in value of Rupee.
Third, the inflow of foreign exchange would increase RBI's Forex reserves thus, adding to its fire power to fight recession 2.0.
Fourth, the forex inflow would also help in financing the current account deficit which in this fiscal is expected to grow beyond the comfort level of 3% of GDP. Since FDI inflows are sticky unlike FIIs they pose less danger of volatility and add to the domestic capital creation process.
Fifth, the decision of FDI in retail would have signaled the determination of govt. towards economic reforms. Thus, boosting investor confidence which at present seems at all time low.
Sixth, FDI with itself brings improved technology which otherwise is costlier to acquire. Thus, FDI in retail would have helped in redesigning the whole supply chain in a more efficient and productive manner.
Seventh, presence of large retailers procuring directly from farms would have helped in improving conditions on Indian farmers and also in elimination of middlemen who  eat up all the benefits farmers should get from their produce.
Eighth, India has been lagging in attracting FDI. This, step of govt. would have sent positive signals to investors thus, increasing FDI inflow in other sectors too.
Ninth, once the big retailers started procuring from Indian farmers and SMEs they would have developed a supply chain and keeping in mind the low labor cost in India I'm pretty sure they would have found Indian firms cost effective to procure for their global supply too. Thus, boosting Indian manufacturing.
Of course, their are cons of the decision too. Like, the competition India's small retailers would not be able to stand i.e. fear of loss of millions of jobs which may lead to net job creation equal to zero. However, big retailers require lot of experience to adjust in Indian market and compete with small retailers who have the magic of personal touch. They will take years to gain that experience and till then India will be able to create no. of alternative job opportunities to compensate for lost jobs. So, benefits of FDI in retail far out weight  its harms.
However, govt.'s step to hold the decision of FDI in retail has given bad signals across the industry and globally. This, adds to investors fear of political instability and policy inaction India faces. It will further gloom investment scenario. Holding on this decision like all other policies was still better but, reverting back a taken decision shows absolute inefficiency and lack of hold of govt. which is not a good signal. I just hope govt. in present session of parliament comes up with some policies which can nullify the negative impact the FDI suspension has created on market mood.

P.S. ( People reading it plz. post ur views on the topic if something seems missing as it will add to my knowledge and improve my writing)

Arresting the slide in Indian Rupee

Indian Rupee on Monday gained marginal strength to finish the day at 51.875/880 per US$ midst expectations that RBI intervened in the market to arrest the slide and will remain keenly involved to keep the Rupee away from high volatility. Since data for RBI intervention comes with a two month lag nothing can be said for sure. However, since people from all quarters are calling for RBI's intervention a look into RBI's fire power might show reasons of its reluctance in intervening as it has clearly signaled.

• RBI presently has $308 billion of forex reserves which is marginally lower than $314 billion that RBI had when the crisis of 2008-09 struck. This is the situation when the recession 2.0 seems to be knocking at doors of global economy. RBI needs to have enough forex reserves to fight the tough weather that is one reason it is going slow at market intervention at this point of time. 
• Around $142 billion of these reserves are on account of FIIs who are known for their flight for quality and this is one reason why Rupee is showing such a fall. FIIs are exiting quickly to turn their assets in $, the safest currency. That's why October saw a net FII outflow. Apart from this quite a large sum is made up of short term external debt and NRI deposits. In total around 88% of Indian forex reserves can be labelled as volatile with a tendency of flight to hard currency in times of crisis. Even though not all of this reserve will vanish in case of crisis still this limits RBIs firepower to great extent.
• Indian exports have slowed but imports are not showing any signs of slow down. Apart from this prices of POL which form around 30% of our import aren't showing any signs of calming added with the pinch of falling Rupee they are pushing our import bills up. Indian reserves at the moment are sufficient only to pay for 9.6 months of import, lowest since 2001. That too limits RBI's intervention abilities.
• Apart from this Indian current account deficit is widening on account of soaring import bills and weakened exports. It was 2.6% of GDP in March 2011 and is expected to be higher for the FY'12. This deficit needs to be financed. Till now Capital account surplus has very well taken care of the deficit. However, in worst case scenario RBI may have to draw down on its reserves to finance the deficit. The central bank needs to be prepared for that too.

All this limits the power RBI commands for intervening in the forex markets. This is why both govt. and RBI have geared up to increase the forex reserves. Opening up of the retail sector for 51% FDI is one such move. Not only will it bring competition, quality and lower prices but also, foreign capital which will be here to stay. Prior to this govt. has raised ceilings of FII investment in govt and corporate bonds. RBI has increased the maximum interest rate that banks can offer on NRI deposits an also raised the maximum rate at which Indian Companies can borrow from overseas market. These measures of RBI increases the possibility of roll over of NRI deposits and short term external loans. Thus, volatility of our forex reserve decreases too. However, the steps are meant for much more. Many more such steps are needed to increase Indian forex reserves to comfortable levels. Apart from this we need to push for more reforms to re instill FII confidence and improve investment scenario. It isn't easy to be a central bank governor when economy is facing inflation and threats of slow down simultaneously. We must have faith on Dr. Subbarao that he will not allow Rupee to be a victim of Speculation and handle the economic crisis with same merit as he handled it in 2008.

P.S. The silver lining of slower economic reforms in India is that Indian Rupee isn't fully convertible. Thank God Indian Rupee isn't fully convertible else the slide in Rupee would have been steeper as domestic investors more aware of the situation would have been the first to escape to safe heavens with turning their assets into $.   

Why Fear Inflation When Recession Hasn't Still Made Way for Boom?????

Everything the European and American politicians talk now a days corresponds to topics like 'Confidence Fairy', 'Moral Obligations', 'High Budget Deficit' and 'Financial Austerity'. They want 'High Budget Deficits' to be cut through 'Financial Austerity' as this is the 'Moral Obligation' of states that spent recklessly, so that the 'Confidence Fairy' will motivate investors to invest and production and employment will go up. What they don't talk of is direct govt. spending to boost production and consumption in the economy so that recession can be seen off. The reason: They fear inflation!!! These people are behaving as if recession has already been gone long back and its the period when recovery is making way for boom. Till his point US and European problems are same, from here they divert.

While both US as well most European nations have been running high budget deficits and have took unsustainable debt US has the benefit of having a central bank EverReady to work as "Lender of Last Resort". On the other hand ECB was never meant to act so and hence it has rejected to act so. So in reality European nations do require the 'confidence fairy' but, not in the way ECB and Germany are intending to create it. Germany doesn't want to bail out the nations unless they implement severe budget cut which will drastically reduce govt. spending in economies already bleeding from investment deficit. In reality even if austerity measures are put in place the yield on bonds of the PIIGS nations will not go down as market will expect further deterioration due to spending cut which if anything will increase the yield. So, budget restructuring should be there, even govt. spending should be reduced but govt. investment should be allowed to be increased even if it is by budget deficit ( note: spending includes transfer payments like unemployment benefit, pensions etc. along with the revenue & capital expenditure made by govt.). The only hope which every one in the world (a little exaggeration is allowed) thinks is the only way out except for ECB is that the bank should act as lender of last resort and start printing Euro to buy bonds of troubled nations. This will definitely bolster the market confidence and stop the speculators. As far as the inflation which ECB and Germany are fearing doesn't seem round the corner as difference between German nominal & real interest rate were near zero, as indicator of almost no inflationary expectation. So, ECB's credibility isn't on stake on inflation front but, Euro's existence is on stake and ECB should step forward to save it.

In the US the debt crisis doesn't exist as Fed is there ready to buy govt. bonds and interest on US debt is around two percent. So the public confidence isn't shaken. Dollar is appreciating which means it still is the most dependable currency in the world. The actual problem comes from the fact that US politicians aren't sure of the fiscal policy they want in place for crisis and in times when policy making should be swift, which is talked to be the greatest benefit of a presidential system over parliamentary system has hit a road block. President Obama depends on his opposition for approval of budget and amount of debt he can take as Republicans dominate the House of Representatives.US stock markets fell on 22nd November due to expectations that the Super-Committee will fail to reach a decision. However as against what is being preached by many the crash isn't a manifestation of fear that Budget Deficits won't be cut it actually manifests the fear that govt. might have to implement austerity program too should and fiscal stimulus might not be enough for a recovery. Republicans are vehemently talking of austerity when they are the ones who actually created the deficit and if not that then set stage for it by cutting taxes and increasing spending manifold. Democrats unfortunately aren't able to take a stand as they know public wants both, a recovery and a deficit cut. Since, Recovery hasn't made way for boom yet the deficit cut can take a backseat and come to front when things are sorted out. One more thing which Obama administration needs to do is actually increase its capital expenditure while keeping a check on transfer payments as it is the capital expenditure that can actually create employment and pave way for recovery. Transfer payments just give people temporary purchasing power which might not be enough a motivation for increasing consumption. Hence, in an economy with depressed consumption and high unemployment it is the direct spending on employment generation that worth every penny.

P.S.- ( These are my understanding of the situation as per the news paper articles and different economists columns I've read added up with my knowledge of Keynsian economics and nothing more than that.)

Aansu.........kafi kuch kahtein hai

http://ithinkcreative.blogspot.com/2011/11/blog-post.html

Has Geo Politics Given Way To Geo Economics

Strictly in sense of political science the core doctrine of Geo politics is that neighbor is our greatest enemy and in contrast Geo Economics suggests neighbor is a state's greatest economic ally. The success of NAFTA, EU and then ASEAN definitely vouch for the doctrine of Geo Economics. Foreign policies of almost all nations today are guided by economic intentions more than any philosophical orientation. Latest in the series of happenings where philosophy made way for Economics is Myanmar getting the leadership of ASEAN. With troubled NAFTA and turbulent Europe ASEAN is the most vibrant trade block in the world, the most promising too. Myanmar, a nation isolated for over two decades now has finally got a role to play in international politics. Isolation was on account of violation of human rights and military rule. Reforms are on way but still the situation hasn't drastically changed. However, nations of the world today are eager to accommodate Myanmar on account of two reasons. The first being proven gas reserves of around 21.19 trillion cubic feet (at the end of 2007). When energy prices are soaring, this is a reason enough. However the second reason is there and it is to prevent Myanmar from sitting in the lap of China, a nation whose hegemonic ambitions make every other nation apprehensive. Even India started dialogues with Myanmar ignoring the human rights situation for these two reasons. There are views that this decision of ASEAN may backfire as Europe the largest export market of ASEAN is very strict about human rights violation. However, I personally believe that 21.19 trillion cubic feet of gas reserves are enough to keep any nation silent till Myanmar is at least showing intentions to reform.

Myanmar however is not the first in the series of nations whose isolation on account of human rights violation and undemocratic governance have ended due to natural resources and economic potential they poses. However what is worth noticing is that China seems to understand the economics of natural resources best. As it is the first to make its footprints in almost all such nations and other nations have to unwillingly follow to balance China out and have a share of the pie. So, as it looks now economics is the driving force behind foreign policy and Geo Politics if not given way has definitely added a new and dominant branch of Geo Economics.

Social Welfare Spending: Should or Shouldn't Be

Introduction:

 “The State came into being for mere life and it continues for the sake of good life.”

                                                                                                       ------ Aristotle

  The above statement of Aristotle, the great political thinker, summarizes the whole process of evolution of the idea of state and its maturation into the concept of welfare state. State came into being to put an end to the chaotic life and instill rules into the otherwise barbaric human society. In reaching its present form state has covered a long journey and its journey continued over the centuries despite individualistic considering it a necessary evil because it promised a better life. From ancient Greek’s City states to medieval Roman empire state existed in various form but at that time state was looked up as the end and human beings only as the means. It was only with the advent of modern age and the wave of democracy sweeping the world marking its beginning with the Glorious Revolution in Great Britain in 1688 that the whole idea of existence of state reversed and the Social Welfare State started taking shape whose guiding principle was:

“Welfare of Human Beings is the end and State is only a means to achieve it.”

The Social Welfare State

A Social Welfare State is one in which the government apart from performing its compulsory functions of protection from external aggression, maintenance of law and order and enforcement of contract, takes part actively in other economic and social activities that promote  overall development of its individuals. Although the idea of a welfare state had started evolving ever since the advent of modern age however, most of the nations of world accepted this concept only after the Great Depression of 1930s proved that govt. indulgence is inevitable. The biggest Capitalist state in the world i.e. USA accepted active involvement of govt. in the economic and social life and kick started a no. of social security schemes to restore public confidence and pull economy out of depression. Thus, the idea of welfare state got a super power backing. The smaller capitalist nations weren’t late to follow and the world had accepted the idea of social welfare state.

The case for Social Welfare Programs

It is the responsibility of government to promote overall development of its citizens and it does so through its social welfare schemes. The haves of the country can get all they want. It is the have-nots that need to be taken care of. Govt. provides for food, education etc. of the poor. However, the question that arises is that is it fair to tax the rich to subsidize the needs of poor and the second one being is at all there a need for specific social welfare programs when the benefits of growth in itself can trickle down to the lower levels of society.

The answer to both the questions is affirmative. There definitely is a need to tax the rich to ensure minimum living conditions for the poor in the society. It is because we live in a civil society and want to continue living in it. Thus, living condition of masses needs to be improved in order to ensure that grieve doesn’t prevail among them and they don’t revolt against the rich. The other reason would be purely economic and that is because it is only when the whole nation shares the benefits of growth that a nation actually prospers. The best example can be India. We started poverty alleviation programs way back in 1970s and our growth rate has definitely improved over the years. The growing Indian middle class is inspiration for any big business and hence, quite a good reason. Hence, only when we promote social welfare can economic welfare of a nation be promoted.

The second question is the need for direct social welfare schemes instead of relying on trickle down. The need arises from the fact that the poor are trapped in a vicious circle of poverty and they need an external stimulus to come out of this vicious circle. Just like a nation a family to fall prey to vicious circle and a person born in poverty may have to die poor if government doesn’t provide him with opportunities to grow and develop.

The case against Social Welfare Programs

“There’s no such thing as free lunch.”

The strongest opposition against social welfare programs is that it takes away hard earned money from pocket of rich to pay the cost of living of poor and unemployed who may be so because of their lethargy and incompetence. However this opposition is negated by the fact that in most circumstances a person is poor because he is born poor and even hardest of labor doesn’t change his situation while on the other hand a person might be rich not because of his endeavors but, because of inheritance.

The second thing is that govt. uses deficit financing to pay for its social welfare programs cost of which mounts every year. This breed inflation as there is too much money in the economy but, the production capacity and hence, supply is limited. The burn of inflation is also born most by the poor as rich have enough money to pay for high priced goods but, inflation at times might reduce real income of poor thus, leaving him worse off. That’s why inflation is regarded as most regressive form of taxation. Thus, the cost of govt. social welfare programs is ultimately born by the poor. This confirms the phrase that ‘There’s no such thing as free lunch’ and ultimately someone pays for it. However, in reality the problem arises because of slippages from the govt. welfare program. Most f the money doesn’t reach the poor or the actual beneficiary and hence, there conditions worsen off while the slippages in form of black money add to inflationary pressure in the economy.

Some opponents of welfare program say that these programs incentivize people to remain unemployed as the programs provide for their living without them doing any work. This is called ‘Welfare trap’. This may be the case in some developed countries where social security net is very strong and unemployment allowances are high. But, in most of the developing nations this is not the case and social welfare programs are rays of hope for the poor and under developed.

Conclusion

On examining the pros and cons of social welfare programs we can conclude that although it is true that governments have stretched their social security net a bit too wide and corruption is dampening the situation but, this can’t undermine the importance of social welfare schemes. These schemes support people at times of need and provide the stimulus to break the vicious cycle of poverty. Instead of abolishing these programs altogether a close look should be given on their implementation and mechanism should be devised to implement them in a way that benefits society the most.