NaMo Namaha!

One of the articles I read on the Modi effect is by Chetan Bhagat . It is a reasonably well argued piece but falls short of pinpointing reasons for a Modi wave, a phenomenon that only the blind, or those pretending to be so, cannot see.

Ahem Ahem, let me say I saw it coming at least two years back! Here are my pieces where I more than broadly hinted that the Modi effect was coming: –

September 2013  (NaMo is a concept whose time has come.)

July 2013 (Last Para… We have one hope and he will come in on the back of huge expectations.)

June 2012 (…..Yet there is hope in the form of Narendra Modi and it looks like his time is well nigh. Pray and hope my countrymen, for that is all you have!)

September 2011  (One of my Indian friends here in Bahrain told me that he would like to vote for the BJP only if they make NaMo PM. Precisely my view too!)

Some of my predictions have gone wildly wrong and that goes with the territory. However, this is one that will not go wrong unless the heavens conspire against India.  If that is so however, I feel that India can never recover in a thousand years.

Let us now see what the rivals of Modi are cooking up. The one, who thinks he is a rival, and is actually one in Varanasi where Modi is contesting for Parliament, is part of what I call the Anti Industrial lobby. The most vile and rotten persons are involved in furthering the agenda of some anti Indian forces, the Ford Foundation and other anti Indian lobbies are a case in point. Arvind Kejriwal is pure evil and it really surprises me when I see how many well meaning and apparently intelligent people are taken in by him. The reason I think he is evil is that he is a Communist, his mindset well camouflaged by concepts such as Swaraj, anti corruption etc. His career has been built on betrayal. Each time he kicks the ladder that he uses to climb up one level. Do not be surprised if he tries to merge his party with the BJP and try sabotage from within.

Each time the media has been playing nursemaid to this evil entity Kejriwal by publicising his Dharnas, mindless statements and all the venom that he spews on Modi.  But Kejriwal has unfortunately managed to sweet talk his way into the hearts of a number of well meaning educated morons. This is another dangerous set, reminding me of the saying of Saint Bernard of Clairvaux  “L’enfer est plein de bonnes volontés et désirs” (hell is full of good wishes and desires). The more ‘contemporary’equivalent is “The way to Hell is paved with good intentions”. In the case of Kejriwal, good intentions are patently absent. He bores me pallid and I am not interested in detailing the litany of his sins of deliberate omission and commission.

Let us see what the Congress has to offer. Nothing much I am afraid. They took charge of a growing and mostly prosperous economy and managed to run it to the ground. I have detailed the entire modus operandi in this piece. How did the people of India hand over the country to such a bunch of twits, led by a half literate Italian who, after 46 years in India, can barely speak passable English or Hindi? This was after they got a Govt that brought the country up from atrocious fiscal management and high inflation to a stage where low inflation and growth was expected. After scamming the country at a scale unheard of, these nitwits had the gall to talk of the ‘rights’ they gave the great unwashed. As if the country idiot was not enough, we had his sister talking of the ‘sacrifices’ made by her mother, her grandmother, her father, her grandfather etc. So what if the deaths of her father and grandmother were in the line of duty? So what if the deaths of her grandmother and her father were a result of their gross errors of judgement? Did the lady’s heart ever bleed for the soldiers of Kargil? Did not the congress refuse to participate in Kargil Vijay Divas  to commemorate the martyrs of the 1999 Kargil war? Enough said of these morons.

In a democracy we almost always end up, at least most of the time, with the lowest common denominator. It is just serendipitous that we sometimes find that the majority make the best available choice.

My theme in this article touches on two aspects, one about the choices offered to the Indian electorate and another on how choices are created according to the collective mental construct of the voters.

Let me outline briefly what NaMo offered to India on behalf of the BJP.

  • Development is the need of the hour
  • Through development we will create jobs and thereby grow your prosperity
  • The rest of India deserves the development model of Gujarat, with assured quality of life such as clean water, 24×7 electricity, good roads, proper infrastructure etc. We will ensure that these are created pan India
  • There will always be rewards for hard work but in the case of those who are unable to fulfil their basic needs of food, housing and so on due to adverse circumstances, we will help them through social intervention

The exit polls tell us that the message found resonance in the minds and hearts of a large number of the Indians who vote. One of the reasons why NaMo was so successful was that his polling agents were not just those in the polling booths but a number of men from UP and Bihar(including splinter states Uttaranchal and Jharkand) who were forced to migrate to Gujarat in search of employment and waxed eloquent on the quality of life there. Tall claims by political parties are one thing but word of mouth advertisement by impartial members of the public is any day more powerful.

The Indian public somehow found India Shining a little difficult to comprehend in 2004 and fell for Congress’s lure of easy money and subsidies. It is moot whether they are now ready for working hard and becoming rich through their own efforts. The expectations created by Modi and the BJP are very high and their delivery will be a challenge. Still one is sanguine that they will strain every sinew to ensure clean and competent governance to lift the economy and the country out of the morass of despondency and hopelessness. Writing this one day before the results are declared, I am waiting with bated breath. Intuition tells me that the vote is for Modi as PM and yet there is a feeling of unease about the dirty tricks department of the congress. Finally however, truth has to prevail and Modi has to become PM for people to have faith in the electoral process. Modi is an idea whose time has come and congress also knows that match fixing will rebound very badly on them.

Finally, the reasons for why there has been a vote for Modi is the corruption and scams that the Congress had done and the consequence thereof leading to no jobs and no hope. The BJP govt in the early part of the century had tried to inculcate a feeling of prosperity but the people veered to the idea of mooching and suckling themselves on the state. Fact is that there is a limit to such mooching as sooner or later, everyone has to pay for themselves. Hopefully, the people have learnt the lesson about free lunches and are now eager to work. Modi has managed to ignite a spark in the people and hopefully the fire of hope will drive the country forward to prosperity for all. 

Fiberals and False Fables of Modi

One Mr T.C.A.Srinivasa Raghavan wrote an article calling Narendra Modi, India’s Nixon. You can read the article here .

I am not surprised at the kind of article that comes out of the pens of such people who think that approval seeking of India’s so called ‘liberals’ is the be all and end all of life.  To sample the kind of stuff that he writes, here is just one para: –

“Mainly, I wanted to find out why he was shying away from cultivating the liberals of Delhi. It seemed to me that exactly like Nixon, Modi too seemed to have an inferiority complex and that this was preventing him from engaging with the liberals. “

It never occurred to TCASR that Modi may not be interested in cultivating the liberals who in his opinion and in that of several others are important only in the past tense. NaMo has never, but never, said anything about having Prime Ministerial ambitions, even when he had all but been named as the PM candidate for the NDA. For instance in his speech given after the elections, some of his supporters started chanting “Delhi Delhi” to which he said that he was going to Delhi on some day in the future for a day. Hardly an indication of a person aspiring to be PM! Since then, he has been elevated to campaign head of the BJP and PM candidate, leaving more of this liberal crowd in a tizzy. Imagine their frustration of not finding success at the end of 11 years of continuous and concerted calumny.

In my opinion and I am sure I speak for a lot of people who belong to the silent majority, NaMo is a concept whose time has come. The constant pillorying by the ‘liberals’ notwithstanding, here is a person who rose from very humble beginnings, stuck to his agenda of doing good for the people of Gujarat and triumphed over odds. For these idiots who call themselves liberals, the social media has screwed up the equations very badly. Resultantly, for Modi, the social media has acted as a vehicle for conveying the good work done in Gujarat to the public at large. And that work has been commented on far and wide in India and abroad only because, unlike the Blocka Dutts of the world, the scribes in other countries have embraced the social media such as Facebook and Twitter as a means of obtaining honest feedback and not hagiographic tweets from drooling hangers on. The power of Twitter was demonstrated to me, quite dramatically, a couple of years back. I tweeted about how the CRTs (Congress Rat Tweeples for the uninitiated) were hounding one of the forthright ladies on Twitter by threatening to find her address and make trouble for her. This lady happened to be in the USA. My tweet reached an American tweep who took full particulars from me and informed the FBI. The result was that the lady had no further trouble from the people who were trying to stalk her in the US.

And this is precisely what Modi has managed. He has let the social media speak for his campaigns with, unlike what is slyly being insinuated as a hired crowd by the #Paidmedia, a volunteer army that conveys in 140 characters what reams of paper and volumes of works by the completely compromised media try their best to hide and obfuscate.  This has left the ‘fiberals’, a coinage by Ravinar or @mediacrooks in a fix. This also has the ruling dispensation that is, in my view at least, pouring good money down the drain trying to ‘influence’ opinions of the excrescences posing as impartial journalists, by dispensing largesse such as Bharat Nirman and the like.

Another aspect of Modi is his complete disdain for anything churned out by the media whom he treats with a barely hidden, and well deserved, contempt. Once he even told Rajdeep and others that the media depends on Narendra Modi for their daily bread. This has a lot of truth in it. The moment the media covers  Narendra Modi  the TRP shoots up. The media is now in a fix. Should it be Bharat Nirman or Narendra Modi? Short term gain and Long Term Pain, if, horror of horrors, NM becomes the PM? Or desert the sinking Congress ship right now and praise Modi, which would result in short term pain (no Bharat Nirman) and no guarantee of long term gain.

That is fine, but what is the reason for Media’s hatred of Modi. The ostensible reason is the Gujarat Riots of 2002 and the killing of Muslims in the riots. But is that the real reason? After all there have been worse riots like the Meerut Riots where Muslims were the victims or the Nelli riots in Assam where again Muslims bore the brunt. Closer to the present, we have the Muzzaffarnagar riots that have not been particularly savoury. Riots are never a good thing and while the Gujarat riots deserve to be condemned, blaming Modi is hardly fair. The truth of the Gujarat riots is available in this site that deals with the facts and not the hyperbole that the media has created.

So what irks the media so much, as also the Press? The simple truth was provided to me by a journalist friend of mine. He told me that it was the practice in Gujarat for the Govt. to provide bus transport from Ahmedabad to Gandhinagar, as well as to provide lunch, snacks and tea to journalists, prior to Modi becoming CM. All this stopped once Modi came into power. He also slashed the rates for ad spend and applied DAVP rates as against commercial rates that were applied earlier. It may be a good idea to check whether Bharat Nirman ads are being aired at DAVP rates or at commercial rates.

For now it would appear that NaMo’s best friends are the members of the Congress party, led by a ‘literate’ Italian origin lady and her son with solid achievements to his name, all of which are listed here . If you were lead to a blank page, please remember that the page is being updated daily and we are yet to see any achievement on the Crown Prince’s part.

Let me now provide a taste of what India can expect under NaMo and it will be evident why there is a great fear of this unknown quantity in the illiberal circles that considers itself as ‘liberal’: –

  1. Revamping of the structures of Govt. funded institutions such as Sahitya Academy, faculties of History, various institutions that have become a sinecure and a pinjrapole for leftists of various denominations
  2. Possible prosecution of the perpetrators of various scams. NaMo does not have any Prithviraj Chauhan complex, like the ‘statesman’ Vajpayee did. There are rumours that Vajpayee used his clout as the Prime Minister through Brijesh Mishra to get a son of a certain powerful Congresswoman freed after the sire had apparently been caught with a large sum of money at Boston airport in 1998. Expect a no mercy approach from NaMo for such transgressions.
  3. Setting an example of corruption free and transparent governance, and ensuring that corruption is punished in an exemplary manner. This will automatically bring down the level of corruption and also allow people to receive services like any client of a company paying for services
  4. Transparency in governance through automation of essential Govt. services providing a new experience of being able to track progress of  and fix accountability for Govt. employees
  5. Stoppage of all these idiotic caste and religious equations. (As a matter of fact, with so many ‘claimants’ for the Muslim vote, the BJP actually will stand out by refusing to appease to minority pressure groups)
  6. Decisive governance
  7. More IT leading to easier and transparent processes
  8. Better prioritization of tasks

To be sure Modi will need a good bit of time to get going. Let me provide an example. In the 90s, I was put in charge of a branch that should have been a wonderful branch of SBI. However, at the time, despite being in the campus of a big public sector giant, with captive business, the branch was a mess. Successive BMs never stuck around long enough to make a difference and, when I was posted, I had arrears of housekeeping, customer service issues, staff and Union issues and what have you. It took me a good 18 months or so to set things right as my entire time and energy was spent in burying the ghosts of the branch’s chequered past. With God’s grace, I was able to work hard with the staff, both clerks and officers putting in exemplary efforts and bringing the branch out of the morass. My point here is that out of a 30 month period I spent there, 18 months is what it took to set things right.

I see a similarity in the circumstances surrounding the probable anointing of NaMo in the hotseat of PM. One readily admits that running a country is infinitely more complex than running a branch of SBI! Although NaMo is an extremely intelligent and capable administrator, the mess created by the UPA will take a while to unwind. In the first term NaMo will have to put together a good, nay a great team, and work in a highly focused manner to set right things. Thereafter, only can one hope to do some real work. Am sure that someone like NaMo is shrewd enough to realize that expectations can be inordinately high and the work of scrubbing out the dirt left by the UPA will take some doing. That is a challenge I expect him to take up with gusto. One of the points in Modi’s favor is his incorruptibility. Another is his ability to communicate very well. After a reticent MMS, he will be seen to be very different. Here’s hoping that the indicators, which appear to be favourable to him, are correct. Here’s hoping that his not inconsiderable administrative skills are more than adequate to slay the numerous problems that have been left by the congress lead UPA.

What many of us are hoping to see is an early death to ‘travesty secularism’ and instead see real Secularism, which as NaMo himself said is India First. We also hope to see a quick injection of confidence in the country, which would enable the Nation to get back on the road to economic progress after it has regressed in confidence and growth over the years of patented misrule by the UPeeA.

The Great Indian Rupee Trick

This piece is not about how the economy is tanking. That is a known phenomenon and I wrote about it in my previous piece here .  Well that was around 8 months back. There was no doubt in my mind that the economy was in serious danger and the US Marines were unfortunately not there to come to the rescue, unlike the themes of several movies seen by me in my formative years.

Here this is about how our currency, the Indian Rupee is just poised on quicksand  and all the inflation that we have been tolerating so far is very likely to come back to bite us right on our collective backsides.  In Jan 2000, the CPI was around the 90 mark and in Jan 2004 it rose to 104. . However, the rate rose sharply from 2008 onwards and went from around 125 straight to 220 in all of 5 years.

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Here’s one more statistic showing how our external trade position has fared.

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Just below zero in 2004 and then it started getting more and more adverse. We are now having a trade deficit of close to 1000 Billion rupees or in USD as on date, it is around USD 18.62 Billion. Please note the sources from where these stats have been taken, before you accuse this Jan Sanghi of fudging statistics to show the Govt. in bad light.

Let us see how exports have fared

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Not bad one would say till you see this one: –

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And this has got progressively worse in 2013. No matter what you are told about easing in percentage of CAD to GDP, there is merit in believing the worst.

Why oh why is the Rupee seeing its worst days against the US dollar? The answer lies in two factors that you need to see, one is the relative rates of inflation, which determines rates over a longer time horizon and the other is supply and demand in the market for dollars. As you will see in this piece written at the time of Budget 2013-14, we are dependent on foreign inflows in the form of FII and FDI to keep the rupee afloat. All very well, except that there seems to be no reason for the world to support the INR. So when the collective thought of investors is to seek alternative avenues for investment rather than India, as they did by exiting Govt. securities and the stock markets, to a lesser extent, the Rupee just tanked shocking everyone. Shocking, hardly I would say. We should have seen this coming. A house built on a sandy foundation with no support will collapse. One cannot ignore economics entirely and expect that there will be no consequences.

One of my Gurus, Mr A.V.Rajwade made this perspicacious observation here in May this year: –

“AV Rajwade: Again I am taking a longer view and yes I think that our belief that we are an exception to every rule is a wrong belief. We cannot keep on living on others’ money forever. Nobody can, nobody has. Nobody has ever grown fast based on capital inflows. These are facts and I do not believe that we are an exception to this basic rule what we have seen in the last 70 odd years in the global economy.

The question is what kind of time horizon money is looking up? As I said our current account deficit is horrendous, there are few signs that there is going to be a significant improvement. Trade number for April was bad and that is likely to persist, iron ore exports have gone down, coal imports will go up. I would believe that in the medium term the rupee’s fate is going to be decided far more by the competitiveness of our tradable sector, not on what happens to the dollar index or what happens to the dollar yen rate or whether there is risk on or risk off and so on so forth. Those are essentially for traders and I am not a trader in currencies.”

The markets react on a short term basis but eventually settle into sanity once the exuberance is over.  This will happen soon.

The Rupee’s fate is only a symptom and not the cause. It has tanked only because of the mismanagement of the economy by the UPA, mainly the congress. One of the factors that affects exchange rates is the differential of inflation. The differential of inflation between the USA and India is roughly 8% p.a. since around 2009. This would affect the Indian rupee directly, if the rupee were a freely traded currency on the capital account. However, since the Rupee is traded only within India for the greater part,  it is governed by supply and demand. At present demand is greater than supply because more USD is remitted out than coming in.  Our exports need to go up substantially and the imports need to be brought down so that we can see a strengthening of the rupee organically. The paradox is that thanks to the mismanagement of the economy, the Rupee should be around Rs 75 to the dollar, based on relative inflation of the USA and India. Our exporters are a resilient lot and will settle for sales proceeds at Rs 60+ to the USD and we can see some short term increase in exports with a slight lag. On the imports side, there is a need to identify what we don’t really need and stop these imports. Is there any reason for us to import apples and oranges? Or soft toys? We must ruthlessly stop nonsensical exports and see how to improve supplies from within. This will result in an internal surplus that will also affect the external deficit in a positive manner for the country.

It’s a pity that the UPA has, for short term electoral gains, reduced our people to a set of wimpy freebooters. Hopefully we will see a new dawn soon and find India on the path to greatness. But that seems to be at least a year away and the path thereafter will include tough and politically unpopular decisions. Well, I can dream!

Coming back to the Rupee, I am of the strong opinion that we will see a big depreciation once again because our economy, at least on the forex side, is floating on a sea of hot money that will just evaporate. How much of our reserves are real and durable reserves of a medium to long term nature, and how much is made up of volatile flows is not clear. Our people have lost faith in the Govt. and banks, and are moving away from deposits as their mainstay. While Gold has stayed down, it will not be long before it starts rising encore. Wait till Deepavali for that. Also when people lose faith in the economy they gravitate towards gold. There are some people like me who have only a limited happiness in seeing the dollar rise. I am well aware that purely in a selfish way, it is nice to get that much more for each Dollar I remit, since I work outside India. Overall, however, I would prefer to see a situation where the Rupee starts appreciating once again on the back of good export performance and the govt. is able to trim down imports.

Finally, here is why I believe that the Rupee will tank further and stay low for a long time: –

  1. No FDI is coming, regardless of the noise made by the #PaidMedia and the dishonest Govt.
  2. The trade deficit shows no sign of decreasing as the imports exceed exports by a good USD 20 billion or so every month
  3. Oil has just touched 100 and will only increase as winter sets in and demand increases. So unless, the oil companies have booked forward at a good price, we have to deal with the reality of higher oil prices
  4. Sooner rather than later, the India story will wither away, thanks to high fiscal and CAD and plain mismanagement and scams, and it will be very difficult to resurrect it. The consequence would be a flight of capital with a deleterious effect on the Rupee

Well, the people have voted for a ‘subsidised’ life with Bharat Nirman and FSB and NREGA. The results are there for all to see. Where are we headed? To a hellish life made more hellish by runaway inflation, a Rupee tanking and looming food shortages as farmers find no labour to help in sowing and harvesting their crops and a whole generation bred on freebies.

We have one hope and he will come in on the back of huge expectations. But I am sanguine that he will assemble a crack team that will take unpopular decisions in the short term to ensure a long term surplus for all of us. If we have UPA3, kiss the idea of India Good Bye!

Dr. Manmohan Singh and the Dustbin of History

This is turning out to be an exercise in pessimism. In my last post in this blog, https://ramanujapuram.wordpress.com/2012/06/03/will-the-economy-perk-up/ , I had at least toyed with the idea of a possible turnaround in the economy. This appears to be a distant dream now.

Why would I say so now when the stock markets seem to think otherwise? Let us see. In 1992, there was one person who talked of “irrational exuberance” of the markets and also about not losing sleep over its movements when the markets were moving diametrically opposite to fundamentals. I can see parallels here. The movement is entirely due to exuberance following a perception that FDI will come pouring in torrents, quite unlike our monsoon that is playing truant in the current year. What is the reality? I do have some friends in the investment banking fraternity and their take is that corporate India is busy looking for bargains in Europe and elsewhere. Businesses have tanked across the globe and there are bargain basement sales going on. How well our businessmen will be able to manage these businesses is another story. But that I understand is the flavour of the month and hence we will find these worthies heading lemming like, to the continent to keep up with the Mittals or the Jhunjhunwalas.

So, who will, braving all the hurdles that our esteemed bureaucrats and politicians ensure come in the way of businesses, invest in India. There could be two sources, one the MNCs who have, in all probability, already fed some ‘motamaal’ to the powers that be. The other could well be the motamaal itself seeking new investments in India. After all, politicians appear to be rather fond of airlines as an investment destination. So they could well choose the FDI route rather that the FII route through sunny Mauritius. Unfortunately, FDI needs a lot more openness and transparency to be brought in. For instance, all KYC norms would apply for the purpose of opening bank accounts, registration and what have you. Thanks to young Chidu, it’s possible to invest in the stock markets through the PN route, which is another name for hot money seeking an investment outlet. Wonder how big names such as Morgan Stanley etc. lend their face to nameless individuals and help them to invest in Indian stock markets. That aside, I wonder how many big names in the USA etc. would risk their money in a country that has demonstrated its incompetence in managing the economy. From once being touted as an economic tiger we have become a whimpering pussy cat.

The P word or Patriotism is considered an old fashioned joke. When everyday brings a new scam to light, is there any doubt that whatever comes in will come with a price tag for services rendered. Any businessman will only do business where his investment fetches him a very good return. For instance, if one is employed in a high profile job with a salary of x, the expectation will be a return of 5x or more. Similarly with money invested in bribes etc. The expectation will be to make a quick buck and recover this ‘investment’. All the more reason to do it quickly, because Governments are notably fickle and are prone to change too.

Having pfaffed on for three paras, let me get to the nub. Where did we go wrong? There was a lot of good in the economy from 1999 onwards. Am seeing the inflation rate as an index of ‘Aal ij Waal ness’. The inflation rate as per the diagram here taken from the Net tells me that inflation in India was around 5% or less throughout the period between 1999 and 2007. Mind you, the NDA was in power for 5 of those 8 years and thereafter, the UPA took over.  So here is the graph for inflation: –

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The graph tells its own story. NDA rapidly brought down inflation fires stoked by a period of instability in Govt and ensured it stayed below 5%. Also note that inflation climbed up during Congress Raj in the glory days of Dr. MMS. One could no doubt talk endlessly about oil prices being low and other blahs that the sarkari fed journalists talk about but the graph tells its own story. One of the great quotes in Chak De India is “Team banana ke liye neeyat chahiye.” Or making a team requires (proper) intention. Similarly for achieving anything one needs some intention. Here the declared intention is one thing, and the actual one quite another.

Whatever spin the meisters of the UPA in the form of #PaidMedia conjure up, the fact remains that we have seen unprecedented loot of the country. And the audit of NREGA will surely tell its own story. From India Shining to India Whining in 8 years is the story of the UPA. They have managed to reduce the self respect of our country to a negligible fraction of what it was during the time of the NDA, dominated by the BJP. This has been accomplished through schemes designed ostensibly to help the Mango Man or Aam Aadmi, but somehow contrive instead, to help fill the pockets of various UPA politicos and their contractors who aid and abet in looting the exchequer. Worse still, the NREGA has robbed people that have made India, of their ability to work hard and earn a proper living and created a generation fed on doles, content with doing nothing for the better part of the year. Soon we will see food production suffer because of the non availability of agricultural labour during sowing or harvest time. We can see for ourselves the deleterious effect of an entitlement mentality on generations to come, provided of course, that there is anything left to distribute.

Let’s now turn our attention to the Current Account deficit, starting from 2000 to 2012. The Manhattans above the Plimsoll level signify surpluses and the ones below show deficits. Here is the picture: –

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Source: http://www.tradingeconomics.com/india/current-account

So while the NDA was busy trying to manage the economy well and ensure a surplus in the current account the UPA has squandered away the advantage through bad fiscal management. Data on fiscal deficit as a percentage of GDP shows the following: –

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Here you can see that the deficit was pegged for the most part at a decent 3% or so during NDA days and that has since escalated to a high of 7.8% in 2009 and is at 4.6% in 2012, according to estimates. Actual fiscal deficit is now revealed to be 5.8% as per the following link.

http://www.indianexpress.com/news/fiscal-deficit-at-5.8–india-worst-in-brics/956287/

Let us see the trend of fiscal deficits or the difference between revenue and expenditure. This graph says it all. Notice how deficits have gone higher from around 2007 onwards.

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Well, a good economy cannot be run down immediately, even by the ‘experts’ in scamming of the UPA. Inheriting a great and healthy vibrant economy with a positive feel and pushing the country down the path of rack and ruin has been the Congress’s speciality. They have done it yet again. With the Dynasty back in the saddle, at least doing the backseat driving they are so used to, they have managed to get all indicators back to negative territory!

So far from doing any good to the country, the combined burden of fiscal profligacy with do gooder schemes such as NREGA, Nehru Gandhi schemes etc. as also the burden of numerous scams that have landed us in a position where we end up borrowing to cover the holes left by these fiscal misadventures, we must now depend on the following to bail us out of this mess: –

  1. FDI investment
  2. FII inflows
  3. The US Marines, maybe

Too bad that the FDI inflows will take their time coming in, FIIS will take their profits and go and the US marines are busy scrambling around to ensure that their salaries are paid.

So who was that worthy who said he would not lose sleep over the movements of the stock market. You guessed it! Our wonderful PM, Dr Manmohan Singh is he, the one who now feels that money does not grow on trees. Late discovery, Dr Singh. What were you doing when we had loot of the Treasury under your watch? What were you doing when your Economics endowed brain knew that NREGA etc. would drain the coffers of the Govt.? Remaining Khamosh or silent is not the answer to anything. People who do not take any money but allow others to do their mischief also get sacked. History will consign you to a hard to reach dustbin as you are undeserving of any respect. 

Will the Economy Perk Up?

After my last piece on the budget, which proved to be reasonably popular, it did not give me much happiness to see the end result. The economy has started unraveling much faster than expected.

An unusually perceptive commentator on Twitter @barbarindian dredged out figures from the DOE report and presented them. Nothing here makes for a pretty picture. I have added a comment G or B to indicate Good News and Bad News against each of these items

  • The overall growth of GDP at factor cost at constant prices, as per  Advanced Estimates, is estimated at 6.9 per cent in 2011-12 as compared to the revised growth of 8.4 per cent during 2010-11. The growth in real GDP is placed at 6.1 per cent in the third quarter of 2011-12. (B) (worse still, 4th Quarter real GDP growth was just 5.1%.)
  • The cumulative rainfall received for the country as a whole, during the pre-monsoon, 2012 (March 1 – May 31), has been 20 % below normal as on 16.5.2012.  (B)
  • Food grains (rice and wheat) stocks held by FCI and State agencies were 54.33 million tonnes as on March 1, 2012.
  • Overall growth in the Index of Industrial Production (IIP) was (-) 3.5 per cent during March 2012 as compared to 9.4 per cent in March 2011. During April-March 2011-12, IIP growth was 2.8 per cent as compared to 8.2 per cent during April-March 2010-11. (B)
  • Eight core Infrastructure industries grew by 2.0 per cent in March 2012 as compared to the growth of 6.5 per cent in March 2011. During April-March 2011-12, these sectors grew by 4.3 per cent as compared to 6.6 per cent during April-March 2010-11. (B)
  • Broad money (M3) (up to April 20, 2012) increased by 2.3 per cent as compared to 2.2 per cent during the corresponding period of the last year. (B)
  • Exports, in US dollar terms decreased by 5.71 per cent and imports increased by 24.28 per cent, during March 2012 over March 2011. The cumulative growth for April-March 2012 was 20.94 per cent and 32.15 per cent for exports imports respectively. (B)
  • Foreign Currency Assets stood at US$ 261.5 billion in end April 2012 as compared to US$ 260.7 billion in end March 2012. (G)
  • Rupee depreciated against US dollar, Pound Sterling, Japanese Yen and Euro in the month of April 2012 over March 2012. (B)
  • Year-on-year inflation in terms of Wholesale Price Index was 7.23 per cent for the month of April 2012 as compared to 9.74 per cent in the corresponding month last year (G)
  • Gross tax revenue April-February 2011-12 has increased by 12 per cent in comparison to the corresponding period in the previous year.  (G)

So we have three pieces of Good News as against 7 of bad. And the seven items make for more bad news as they point to possibilities of worse to follow. For instance, there has been a marginal increase in the Forex reserves as on April 2012 as compared to March 2012. However, when seen in the context of increasing import growth and decreasing export growth, it presages further decrease in forex reserves. Hitherto, the RBI had been playing the role of a stern watchdog and ensuring that the forex reserves, money supply and fiscal deficit were kept in check. I am sure that they must be putting up the right notes to the Finance Ministry and ensuring that they perform their role as far as possible. However, this Govt. has gone rogue with populist policies that threaten to bust the Bank and send the country hurtling into bankruptcy. All this is being done, merely to placate an ignorant high command that is eager to put into practice schoolboy or schoolgirl socialism, egged on by jholawalas who think that Naxalites are Gandhians with guns.

Just take a look at these stats culled from the document released by the Reserve Bank of India http://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/39AT_BCS090512.pdf . This again is courtesy @barbarindian. Am greatly indebted to him for fishing out the numbers from various Govt and RBI sources.

The NDA left a trade deficit in 2004 of Rs 657 billion. As at the end of 2011, after 7 years of blessed UPA rule, we end up with a trade deficit of Rs 5409 billion. The news gets even gloomier. Cumulative Trade Deficit as on December 2011 for the last fiscal year is Rs 3343 billion. And we have not got stats for the current calendar year yet! Going by trends, we can expect an increase of roughly 1400 billion which will ensure that we get closer to Rs 5000 billion trade deficit.

We now have a potent cocktail of increase in money supply (http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=26560), a burgeoning trade deficit, increases in borrowings, as per projections and possible inflation that will kick in with a lag. The lag is due to delay in feeling the effects of the weakening Rupee. Next we have the presence of 800 pound gorillas known as mega scams, which are going to put more pressure on the fiscal deficit.

Do you wonder why the stock market has tanked, GDP growth is down to 5.3% on an annualised basis and overall inflation is walloping the daylights out of the Mango Man, or Aam Aadmi, who cannot afford mangoes? All because of schoolboy or schoolgirl socialism, an electorate that is easily fooled and an opposition that knows only how to snatch defeat from the jaws of victory. In an environment such as this, what chances of any increase in investments. Even the black money coming in through the PN route seems to have crawled back where it came from!

Yet there is hope in the form of Narendra Modi and it looks like his time is well nigh. Pray and hope my countrymen, for that is all you have!

Are We Paying Interest for UPA Scams?

I asked Mrs. Krishna recently about how she would make a budget and her answer was she would make a list of what she wanted, phone up the provision store and ask him to get whatever she wanted. I said that is the situation when we have money, and Thank God we do. But what if we did not? She said she would review the list and strike out all that we can do without, for the moment. Common sense for sure! But a sense that eludes our esteemed ministers and other grey eminences that prepare our National Budget and spend the taxpayers’ monies.
So what exactly is this Union Budget and how is it made? To be sure it is not made the way Mrs. Krishna, not a PhD in Economics but educated with an M.A. in French Literature makes it. She has understood that with the erratic kind of earnings her husband has, she has to balance her wants and needs with a sense of the monies on hand during the month. She ensures that her work related expenses are taken care of by her earnings and the household expenses come mostly from my earnings. She has been with me through thick and thin, whether it was with the not so substantial salary at SBI or my rather more abundant earnings as an NRI consultant, or even my days of very meager earnings. Her budgeting is based entirely on the money available at her disposal for the month.
The reason for mentioning Mrs. K is that she is not unlike other homemakers in India, or even elsewhere in the World, who balance their budgets by cutting this item here or that item there and adding a little extra here or there depending on the earnings available at their disposal. Common sense it would seem, at the risk of repetition. Unlike people who earn an honest living and ensure that they spend only what they earn, the Government thinks it can get away with spending money it does not have and borrowing to make up the deficit, which incidentally, is what deficit financing is all about. Part of it is issuing currency and lowering the value of your hard earned Rupee. How does this impact you? When you see the Rupee eroding in value, it does so both within and outside India. Hence, you end up paying more for goods and services. This is one more tax on you that benefits nobody. Having given this background, let us see what are the supposed objectives of the budget are and whether they are even remotely fulfilled.
Main objectives are to: –
• Focus on domestic demand driven growth recovery
• Create conditions for rapid revival of high growth in private investment;
• Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation
• Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts
• Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.

If one were to focus on domestic driven high growth and to revive the climate of investment, what would you do? Would you not try to balance your budget by reducing taxes, especially corporate taxation, to ensure that there is more money in the hands of corporate for investment? Would you not try to put more money in the hands of people who earn it legitimately and spend it well? Would you not try to reduce the incidence of black money by making creation of the same unnecessary? It is axiomatic that the lower the rates of taxes on individuals and corporate, the higher the collections. It is a sad fact of life that the people who make the budget for the most part are curd rice eating Tam Brahms! These worthies are somehow averse to the idea of putting money in the hands of people as, Heaven forbid, they may actually spend it! But when the World Economy is turning turtle and every country is looking to find a way to create demand and make people spend money, the Indian Govt. is content with measures that are the financial equivalent of rearranging the deck chairs on the Titanic! So they do nothing on the Corporate Tax front and instead increase the threshold for taxation from Rs 1.80 lacs to Rs 2 lacs. Net effect is that the beleaguered middle class gets an extra Rs 2000 to spend. Next step is to make the slab from Rs 3 lacs to Rs 5 lacs 10% instead of 20%. So a further 20k ends up in your pocket annually. With an inflation rate of roughly 10% we have a slight compensation for it. But if a family is earning Rs 2 lacs p.a. their income is already eroded to that extent. Corporate taxation is another area where it was possible to give a little extra benefit in order to attract investment and create more jobs. The budget fails here also.
Before getting to other objectives, most of which the Govt is content with paying lip service to through similar tinkering, let us see the big picture, viz. whether it has the cloth to make the coat. I made a list of what the FM said in his budget speech and the end result, whether credit or debit. Forgive a Banker for wanting to balance books!
PSU Banks Capitalisation 15000
Highways 25360
DMIC Corridor 3700
Rural Housing Fund 4000
Interest subvention on HLs 0
Waiver of loans for Handloom 3888
Geo Textiles NE 500
Opportunity Fund 5000
Dept of Agri 20208
RKVY 9217
Green Revolution to East 1000
Mission for protein supplement 2242
Aquaculture 500
Interest subvention 13% for agri 0
Agri Credit 575000
RRB for STL 10000
Research in agri 200
Accelerated Irrigation Benefit Programme 14242
Murshidabad Flood Control 439
National Mission on Food Processing 0
Creation of Foodgrain Silos 0
Scheduled Castes Sub Plan 37113
Tribal Sub Plan 21710
National Food Security Bill 0
Integrated Child Development 15850
Mid Day Meals 11937
Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA 750
Rural Drinking Water and Sanitation 14000
Backward Regions Grant Fund 12040
Rural Infra Dev Fund 20000
RTE-SSA 25000
Rashtriya Madhyamik Shiksha Abhiyan 3124
Credit Guarantee Fund for Education 0
NRHM 20822
NUHM 0
National Rural Livelihood Mission 3915
Women’s SHG’s Development Fund 300
Bharat Livelihoods Foundation of India 0
Prime Minister’s Employment Generation Programme 1276
National Skill Development Corporation 1205
Himayat for J&K 0
National Social Assistance 8447
National Family Benefit scheme 0
Agri Universities 360
Defence 193407
CAPF Buildings 4465
Aadhar 0
Remaining Expenditure (Probably revenue expenditure) 404708
1490925

Here are the sources: –
Taxes 771071
Tax Free Bonds 60000
Non Tax Revenue Receipts 164614
Non Tax Capital Receipts 41650
Overseas Infrastructure Bonds 8000
PSU divestment 30000
Total 1075335
Market borrowings 479000
1554335
Here are a few catches. There is a big boost to be given for Aadhar and nothing has been budgeted for this. The last item of the expenditure is Remaining Expenditure and that is entirely being financed through market borrowings. So let us see what that means. All the money that is meant for day to day expenses will be borrowed from the market and we will pay interest on it. So the Congress can keep creating social contracts and we end up paying for their profligacy in perpetuity. What then of the BJP who will vote for this budget after making a few token changes. In Hindi there is a saying “Haathi nikal gayi aur poonch rah gayi!” Liberally translated it means the elephant got away but the tail remained. With these worthies in Parliament it is decorate the tail a bit and satisfy the opposition but let the elephant remain as it is!
Let us leave the expenditure and income aside and come to one great truth that has eluded most of our educated PhD economists, assorted MBAs from premier institutes and armchair intellectuals such as me! If we put together all the scams that we have suffered through with the UPA, during the current edition, the sum total would exceed 5 lac crores p.a. That is because, as per my hypothesis, like an iceberg, the scams hidden from view are greater than those that have surfaced.
I have not bothered to go into whether we are going to meet the targets of income or expenditure but I have no doubt that we will meet the borrowing targets! Hence, the Govt. is going to borrow Rs 479000 crores or almost three 2G scams worth of money from the market. Let us now see what happens when we do so. We end up paying interest on borrowings. Assuming an interest of 8% on an average, we would end up paying around 39,000 crores every year on the money borrowed by the Govt to plug the hole in its finances. So we are paying in perpetuity for the dishonesty and corruption of the UPA.
To me at least, this is good reason to ensure that the UPA is dispatched to the nether regions of the earth and never allowed to surface. For the BJP, which has had enough chances to kick the Govt. in the cojones, and has not done so; this is good enough reason to kick this Sarkar into oblivion.