Paul Krugman on Indian Economy …

Posted on March 18, 2018. Filed under: Personalities, Business |

India made rapid economic progress during the last 30 years but Krugman warned lack of jobs and slowing manufacturing sector could derail the growth story of the world’s fastest growing economy.

“India achieved as much economic progress in the (last) 30 years as the Great Britain did in 150 years. It is a very rapid space of transformation….why does there still seem to be visible poverty in India?,” Krugman said.

“Lack of manufacturing could be a major hurdle as India doesn’t have the jobs,” he said.

Another concern for India is high economic inequality, amid rapid economic progress, resulting in uneven distribution of wealth, according to Krugman.

Terming India’s economic growth progress as “extraordinary”, the economist said the country has become (on purchasing power) the world’s largest economy overtaking Japan and while being behind the US and China, it is far bigger than any European country.

Attributing factors that played a role in the economic “progress”, Krugman said there was a dramatic change in India’s policy including liberalised policies taken in early 1990s.

“I am on the Centre-Left, but I do not think the government should have a heavy hand on economy. India used to have Licence Raj, where bureaucratic obstacles were immense and that has not gone away completely but enormously reduced. India has become a much easier place to do business that it was. The PM said India moved from 148 to 100 in the rankings. That is not a badge of distinction, but it is better than it was,” he observed.

He also touched upon the problem of corruption that the country has been facing. “There are issues of corruption. You cannot become Denmark with Chinese levels of corruption,” he added.

In July, last year, the economist had blamed the Modi government’s note-ban, hawkish monetary policy of RBI and a strong rupee for the tepid growth, saying the 6 per cent GDP expansion was “disappointing” for a country like India.

“Your 6 per cent growth is actually disappointing. You probably should be doing 8 or 9 per cent,” the economist said. Unlike the advanced economies, it is “conventional macroeconomic issues” which are afflicting India, he said.

On November 8, 2016, Prime Minister Narendra Modi took the nation by surprise abolishing Rs 500 and Rs 1,000 banknotes with stated objective to fight the scourge of black money.

However, withdrawing 86 per cent of the currency in circulation in a economy that was close to 98 per cent cash-driven, had its impact on growth, as seen in the official data released in May.

Read Full Post | Make a Comment ( None so far )

India – The Chidambarams’ …

Posted on March 6, 2018. Filed under: Business, Personalities |

By Madhav Jalapat.

UPA-era Finance and Home Minister Palaniappan Chidambaram and, by extension, his son Karti have long been considered to be among those “protectees” within the Lutyens Zone who are immune to legal accountability for their actions.

Hence, it was with incredulity that the senior Congress party leader’s former and present associates across the world heard of Karti Chidambaram’s surprise arrest by CBI sleuths at Chennai airport. Talk spread rapidly throughout the zone that this was a “pre-arranged jumla”, and that Karti would be “out of the clutches of the CBI within a day”.  

The initial granting of just a day’s custody of Karti to the CBI added fuel to such rumours, which were, however, weakened by the subsequent court order granting a somewhat longer period in custody to the investigating authorities.

That the senior Chidambaram has immense goodwill and access across the different branches of governance, especially Parliament, the Judiciary and the Central Secretariat, is undoubted. Although there has been much discussion about the Congress stalwart’s contacts within Parliament as well as the Judiciary, only his whispered linkages within the network of senior Central officials will be sketched out here.

Of course, while claims have been made about the existence of a “Chidambaram Clique” within the leafy boundaries of the Lutyens Zone, several of those seen as being part of such a group say that their only contact with him was as civil servants to their minister, and hence that the same degree of familiarity and loyalty as they demonstrated to Chidambaram was attached to his predecessors and successors. 

Several of these officials have continued their close contact with the former minister even since 26 May 2014, while he himself has, according to sources in the civil service, used his still considerable clout to ensure desirable posts for his presumed protégés.

The valuable trait of effectively ensuring that the tasks given to them by their political masters get smoothly carried out is what seems to have ensured that several who are seen as being part of the “Chidambaram Clique” have retained important responsibilities during the present NDA dispensation, and indeed have been promoted to much higher posts.

Doing the bidding of the minister who set the CBI against the Intelligence Bureau in the Sohrabuddin encounter case, and who sought to establish the existence of a Hindu terror network across the country, does not seem to have adversely affected the careers of Chidambaram loyalists in the BJP-ruled government. 

The Congress politician’s clout and goodwill extend beyond the boundaries of India. Former RBI Governor Raghuram Rajan, as an example, is considered personally close to Chidambaram. He is said to be responsible for the RBI reversing, in 2014, its 2012 decision on the “Kumudam matter” involving Jawahar Palaniappan, who is close to Chidambaram.

A Lutyens favourite, Rajan is accused by former colleagues in the RBI of having tipped off the former Finance Minister about queries made to them by the Enforcement Directorate on the Aircel-Maxis case.

In New York and London, fund managers swear by Chidambaram and many have since worked with Karti. Over the past eleven years, the junior Chidambaram has built up a record of financial success that would give Warren Buffett pause, although friends of the family say that this is entirely because of the financial genius and trading instincts of the hard-driving Chettiar scion from Tamil Nadu.

A senior IAS officer, whose name comes up within his circle of peers as being “very close” to P. Chidambaram is K.P. Krishnan. Because of his proximity to the then Union Finance Minister, even routine presentations by him were reverentially attended by the RBI Governor and his Deputy Governors, as also by such top bankers as HDFC founder Deepak Parekh and the heads of private banks such as ICICI and Kotak.

The officer’s detractors link him to Chidambaram and the minister’s (well deserved or not) reputation for partiality towards the National Stock Exchange (NSE). It is true that neither SEBI nor the ED seems to have exhaustively examined the co-location snafu in the NSE, where some influential brokers were said to have secured access to confidential trading data of the exchange through connecting their servers via “dark fibre”, in the process making trading profits amounting to four figures in rupees crores.

Certainly individuals linked to NSE, such as Ravi Narayanan, Ajay Shah, Sunita Thomas, Susan Thomas, Suprabhat Lala and Chitra Ramakrishnan knew Chidambaram and Karti well, but whether this was linked with what took place in the co-location mess at the NSE is a matter that does not appear to have been investigated (especially by SEBI) with the seriousness that multiple allegations of “dark web” insider trading merit.

K.P. Krishnan and another IAS officer, Ramesh Abhishek, are regarded by their peers as having been active in taking steps that resulted in the downfall of an exchange that was competing with NSE, but this is again a charge that seems to have evoked little interest within the agencies even after the NDA came to power.

Sources say that the officers had been behind the reluctance of agencies to ensure that the eight brokers who profited from the NSEL scam repaid the moneys owed. Instead, they ensured that SEBI and ED fire got concentrated on Chidambaram’s target, the founder of the competing exchange, Jignesh Shah.

The CBI, SEBI and other agencies have followed the Krishnan-Abhishek cue of concentrating only on Shah, rather than the brokers who actually defaulted. Abhishek, it may be added, is held in as high regard by the NDA as he was by the UPA.

As for SEBI, Chidambaram was seen by officials as succeeding in having his own man in charge of that organisation, such as C.B. Bhave, who was appointed to the post despite having that very agency investigating him at that time in matters connected with NSDL. Naturally, this “investigation” went nowhere. 

Another Chidambaram favourite in SEBI, according to senior officials of the time, was U.K. Sinha, whose record in ensuring that defaulters pay back the moneys taken by them was visibly less than stellar.

Sources in an investigative agency claim that a very senior SEBI official (not Sinha) was even spotted transporting in a commercial flight a suitcase that was filled with cash, which represented payment by a grateful tycoon for compounding a high profile case.

Within the Department of Financial Services (DFS), another Chidambaram favourite, Amitabh Verma, was claimed by colleagues to have “encouraged” Public Sector Banks (PSBs) to sell their loan portfolios to private banks at low values. These private banks very soon resold such loans for a much higher value.

Thus far, no investigation appears to have been initiated into such UPA-era transactions. Chidambaram was also considered within North Block as instrumental in getting Atul Rai to be made the Managing Director of IFCI. 

Thus far, the former Union Finance Minister has led a charmed life, although there have been scattered accusations, including of allegedly standing by, especially during 1996-97, as poppy growers grew more than they needed, the balance getting sold to the narcotics trade.

Interestingly, the lawyer chosen by many clients involved in narcotics-related cases to represent them was Nalini Chidambaram, the wife of P. Chidambaram, who is known as a highly capable advocate who gets good results for her clients.

Chidambaram too is among the best lawyers in India, while Karti seems to be a financial genius, judging by his results both domestic and global. 

In the INX Media case (involving FIPB sanction), officials present during that time say that two senior officials, Ashok Chawla and Arvind Mayaram, were in the picture, allegedly at the behest of the then Union Finance Minister, who is known to be close to both of these officials.

The same sources say that the duo were also involved “on Chidambaram’s say so” in the Aircel Maxis case, although only an investigation would show whether both had been acting within the rules. A detailed enquiry will bring out the truth of the case.

The INX case was cleared in the FIPB and was not referred to the Cabinet Committee on Economic Affairs, a step that had been suggested by some at the time.

Earlier, the senior Chidambaram’s associates were accused of having taken over land at a throwaway value in a coastal area near Chennai, land that belonged to poor fishermen. This was allegedly “facilitated” by the then Revenue Secretary to the Tamil Nadu government, Saktikanta Das.

The officer concerned was subsequently promoted and shifted to the Central government as Joint Secretary in the Finance Ministry when Chidambaram was a minister.

Even the NDA regards Saktikanta Das highly and has given him further promotions. This hard-working IAS officer, who was among the prime movers behind the 8 November 2016 demonetisation, is now a member of the Finance Commission. No serious investigation into lands in urban conurbations of Tamil Nadu transferred to Chidambaram’s family and associates while he was in high office has thus far been conducted, nor is any likely, judging by the record of the probe agencies thus far. 

Palaniappan Chidambaram has had the good fortune of having several at the top of the LIC being close to him, such as T.S. Vijayan, who subsequently became Chairman of IRDA. The LIC invests heavily in the stock market, entirely coincidentally a favourite playground of Karti and his associates. Several nationalised bank chairpersons were known to be favourites of the former Union Finance Minister, including Canara Bank Chairman M.B.N. Rao, State Bank of India Chairman O.P. Bhat and Yogesh Aggarwal of IDBI. Several individuals were appointed to the boards of Public Sector Banks (PSBs) through Chidambaram’s efforts. These individuals are claimed to have lobbied for several loans that subsequently morphed into NPAs. No enquiry seems to have been conducted by the present government into exactly which bank directors or politicians recommended big loans during the UPA period, advances that went bust, including those to Kingfisher Airlines. From removal of duty differences between natural and man-made diamonds (benefiting defaulters Winsome and Geetanjali Jewellery); to ensuring through budget announcements the sale at a cheap price to a close friend of a mine in Goa; to making a leading state-sector bank “force exporters” (eventually at great loss to them and to the detriment of the country’s exports) to enter into forward positions on dollars through a dubious US-based paper entity; to nudging banks to make expensive changes in logo and software so as to benefit favoured entities, several charges have been made by serving and retired officials about the manner of functioning of the “Chidambaram Clique” that till the past few weeks seem to have been ignored. However, it is possible that the prediction being made by him, son Karti and wife Nalini that they will “soon be free of any taint” (through arguing their case within the legal system) may come true. And should the Congress party cash in on the errors of the BJP—mistakes pointed out every week by Columnist Chidambaram—and manages enough Lok Sabha seats to lead a coalition government in 2019, Chidambaram will almost certainly return as the Union Finance Minister. Some, especially in Washington and London, predict that he may even be made (a la Manmohan Singh) the Prime Minister, should Rahul Gandhi decide to sit it out till 2024, the way the Congress president did during 2009-2014. 

Given Chidambaram’s record of assisting friends and annihilating foes, both sets of individuals will be watching the immediate fortunes of this urbane and ruthless politician from the South with unwavering attention. 
Read Full Post | Make a Comment ( None so far )

India – Where it Stands …

Posted on January 30, 2018. Filed under: Business, Searching for Success |

SA Aiyar – Economic Times –

I was asked on TV whether India was emerging as a global leader with a global vision for the 21st century.

Absolutely NO, I replied.
India is still a poor, under-developed country, internally riven over what social and economic vision it should have for itself, with barely a thought about developing a new vision for the world.

Regardless of Modi’s defence of globalisation at Davos, India is instinctively protectionist. Unlike a true globaliser, it does not see imports as a welcome ..

Absolutely no, I replied.
India is still a poor, under-developed country, internally riven over what social and economic vision it should have for itself, with barely a thought about developing a new vision for the world.

Regardless of Modi’s defence of globalisation at Davos, India is instinctively protectionist. Unlike a true globaliser, it does not see imports as a welcome way to get cheap goods from the rest of the world: it sees them as a threat to Indian employment, production and prosperi ..

Read more at:

Read Full Post | Make a Comment ( None so far )

In 2017 – the Rich got Richer …

Posted on December 27, 2017. Filed under: Business |

Read Full Post | Make a Comment ( None so far )

Saudi Arabia – What is going on? …

Posted on December 22, 2017. Filed under: Business, Searching for Success |

Read Full Post | Make a Comment ( None so far )

Tax Avoidance – India is not far behind …

Posted on November 14, 2017. Filed under: Business |

An Editorial in the Guardian – Saturday 11 November 2017

The Guardian view on the Paradise Papers – not all is lost The tax avoidance revelations have unleashed a demand for reform and social justice. Only a rash government would ignore it.

While it is true that until recently the Queen did not even pay tax, it is shocking that her Financial Advisers saw nothing wrong with investing several million pounds of her Personal Wealth through such a convoluted offshore fund. The Queen finances a whisker of BrightHouse, the household goods business accused of exploiting its customers.

Bono owns a bit of a Lithuanian shopping centre. Lewis Hamilton dodged VAT on his private jet with the finesse of an F1 champion.

These are just a few of the headline details that have emerged this week out of the Paradise Papers, a leak of 13.4m files from the offshore Law Firm Appleby. They show the World’s Super Rich employing legions of accountants to legally avoid paying the tax they owe to the Country where they live.

And all over the World, jaws have dropped in astonishment.

The Guardian was one of 95 media organisations with whom the International Consortium of Investigative Journalists shared data obtained by the German newspaper Süddeutsche Zeitung.

The Papers are a reminder of how erratic and sometimes downright obstructive the British Government has been in its attitude to reforming domestic taxes, and in supporting international attempts to tighten up transparency and accountability rules.

Less than a fortnight out from a budget that is set to maintain the cap on public spending, the discovery of so many who are so willing to flout the rules by which most of us live has provoked the kind of outrage that should be a watershed.

Unlike last year’s leak of the Panama Papers, which exposed illegal tax evasion, the Paradise Papers have not uncovered criminality.

Instead, they reveal a state of mind where it is entirely normal to ignore what most citizens regard as the wider obligations that accompany great good fortune.

So, for example, while it is true that until recently the Queen did not even pay tax, it is shocking that her Financial Advisers saw nothing wrong with investing several million pounds of her Personal Wealth through such a Convoluted Offshore Fund.

The stories that have emerged – some of Celebrity Greed, some of a Rapacious Capitalism – are all the more shocking as the threadbare state of the UK’s Public Realm after seven years of austerity is now unmistakable.

Setting aside the individual pain of impoverished services, in this past week alone a powerful Report from a group of think-tanks argued that the NHS needed an extra £4 bn a year to stand still, while the boss of NHS England, Simon Stevens, issued something close to a back-me-or-sack-me appeal as he demanded a similar increase.

Teachers’ leaders pressed the Chancellor to fund a 5% pay rise; Councils demanded that the cap on their borrowing to build is lifted as more than 78,000 families face homelessness. The crisis in social care is unresolved.

Ending tax avoidance may never be possible. Nor, alone, would it raise enough to restore the fabric of Britain’s Public Services. But it could be much more tightly controlled.

And while some abuses like the offshoring of profits by global companies need the kind of international cooperation Gordon Brown advocated in a BBC Interview this morning, there is plenty of scope at Westminster too.

Yet in the past few weeks an attempt by Stella Creasy to close a loophole that allows foreign-owned Companies to deal in commercial property without paying capital gains tax was defeated.

This week, despite the revelations, Theresa May ruled out using UK Financial Clout to demand a Public List of Beneficiaries of Offshore Trusts.

Financial Services are major Conservative donors. A similar proposal in the European Parliament was obstructed by British MEPs. And HMRC, the Government Department that polices tax gathering, is widely accused of having being captured by the tax avoidance industry.

It is understaffed and underfunded, while most of the Department’s energy is directed towards inventing a customs and excise regime for the world after Brexit.

Death and taxes were supposed both to be inevitable. Now for anyone rich enough, taxes appear merely optional. But an appetite for change and social justice has been unleashed, and it would be a foolish Government that ignored it.

Read Full Post | Make a Comment ( None so far )

Tax Havens n Tax Avoidance …

Posted on November 9, 2017. Filed under: Business, The English |

Offshore tax havens: How do they work? What can be done about them? Can they ever be legitimately used? Exactly how big is the problem? And what can governments actually do about it? – Ben Chu

Another massive leak of information from a tax haven law firm – dubbed the Paradise Papers – has shone a spotlight on the questionable ways in which wealthy individuals and big companies structure their finances.

But how do tax havens actually work? Can they ever be legitimately used? Exactly how big is the problem? And what can governments actually do about it? How do tax havens actually work?

One of the primary methods is corporate profit-shifting. This is where a multinational company registers its headquarters in a low -corporation tax jurisdiction and then books its profits there, rather than in the Country in which it actually makes its sales.

This is what firms such as Google and Facebook have been doing in order to lower their global corporation tax bills. But what about personal taxes?

An individual could simply become a resident of a low-tax country in order to pay a lower rate of tax on their income. This is what racing drivers and globe-trotting sportspeople generally do.

But there are also ways in which individuals can remain living in a non-tax haven, such as the UK, and still benefit from tax havens. If an individual keeps their assets in a Trust in an offshore tax haven they can legally avoid paying capital gains in the country in which they are resident.

What is a trust? This is where an individual puts their assets “in trust” to be managed by nominally independent third parties (or “trustees”) for the benefit of named beneficiaries, which can include the individual who put the assets into trust in the first place.

The income can be paid out by the third parties to the beneficiaries regularly, or sporadically, depending on the decisions made by the third parties.

Once it is received by the beneficiaries, the income is subject to income tax. But while it is in the trust the assets are not subject to capital gains and the income on the investments is not taxed.

A major tax advantage is that the beneficiary of a trust is also not subject to inheritance tax on the value of the assets when the person who put the assets into trust for them dies. So who are these trustees?

They can be local officials in the tax haven, or partners in a local law firm, or accountancy firm, appointed by the individual who put their assets into trust.

Given the likelihood of those trustees being influenced by the previous owner of the assets when it comes to income disbursements the scope for abuse of the arrangement is obvious. But aren’t there legitimate uses of tax havens?

Historically, mutual investment funds, which attract investors from around the world, have registered themselves offshore to avoid the risk of double taxation of their surpluses.

This isn’t necessarily a problem so long as the beneficiaries of the fund do pay income tax on the money they receive from the fund in their home country.

When it comes to off-shore trusts, some argue that they are necessary to safeguard the privacy of beneficiaries. There are some circumstances where one can imagine this is a legitimate argument.

Yet the problem is that privacy can be so easily abused to facilitate illegal personal tax evasion and other crimes such as money-laundering. How big is the problem?

Corporate tax avoidance is significant. At the end of 2016 the Giant US Technology Companies alone were estimated by Moody’s Investors Service to have $1.84 trillion (£1.4 trillion) of cash held offshore.

This is essentially profits that Firms such as Apple, Microsoft and Google registered outside the US, and most of which is piled up in tax havens. But personal tax avoidance is bigger.

The calculations of the Economist Gabriel Zucman – analysing discrepancies in Countries’ National Accounts – suggest that around $7.6 trillion, or 8 per cent of global wealth, is held offshore.

That’s up 25 per cent over the past five years. Not all of that money will be held off-shore in order to dodge tax in a morally questionable way. But it’s fair to assume that a large proportion of it is.

The Tax Justice Network Campaign Group estimates that Corporate Tax Avoidance costs Governments $500 bn a year, while personal tax avoidance costs $200 bn a year.

Didn’t David Cameron promise to clamp down on all of this? The previous Prime Minister did implement a series of “automatic exchange of information” Agreements between the UK and the tax authorities of various tax havens designed to prevent the possibility of evasion.

But campaign groups say that this effort was a lot less impressive as a crackdown than the fanfare suggested. And the new system hinges on an unrealistic level of cooperation from law firms and accountants in tax havens.

Cameron also actually fought a proposal from the European Union that there should be public transparency over the beneficiaries of offshore trusts. The previous government’s “diverted profits tax”, designed to curb corporate tax avoidance by the likes of Google, was also grossly over-sold by ministers as a viable solution to multinational profit shifting.

So what needs to be done? On corporation tax avoidance, there are broadly two potential solutions. One would be for governments around the world to collaborate and agree to tax a multinational’s profits on the basis of a fair international formula, based on their sales, investments and employee numbers in various countries.

This would effectively shut down tax havens, where no substantive economic corporate activity actually takes place.

The other solution is for governments to unilaterally tax a multinational’s revenues, while making allowance for its local costs, investments and exports. This was something that US Republicans were pressing for earlier this year, although the plan has now been ditched.

And on personal tax? Here a major part of the solution is to go down the route that David Cameron blocked: to demand full and public transparency on the beneficiaries of offshore trusts. Acting in concert, the Governments of the EU could bring serious pressure on many tax havens to comply.

Many tax havens such as the Cayman Islands and Bermuda are also British Crown Dependencies, giving the UK Government itself considerable leverage if it chose to exert it.

Read Full Post | Make a Comment ( None so far )

Japanese Bullet Train takes India for a Ride …

Posted on October 31, 2017. Filed under: Business |

Now that the hype over the bullet train has subsided, it is time to do some cold calculations. India will borrow Japanese yen 150,000 crores [equal to Rs 88,000 crores today], bearing 0.1% interest, with a 15 year lock-in period, repayable in 50-60 years. Looks attractive indeed. Prime Minister Narendra Modi is reported to have commented: the loan is “in a way free”. The prime minister was evidently not briefed properly, as the following analysis will indicate.

Today Re 1 buys 1.72 yen, ten years ago Re 1 could buy 2.80 yen and, 32 years ago, say on February 26, 1985, Re 1 could buy 19.77 yen. On February 26, 1985, the exchange rate of dollar/yen was 261 and that of dollar/rupee was 13.20. Divide 261 with 13.20, you get 19.77. So, had India borrowed 150,000 crores yen on February 26, 1985, today, that is after 32 years, the principal amount of loan (without interest) would have swelled 11.49 times (divide 19.77 by 1.72). Depending on repayment schedule and lock-in period of loan, the multiplication factor could have reduced from 11.49 to 6 or 7 on a conservative estimate. This is simple arithmetic and no rocket science.

So, can we not predict what fraction of a yen, Re 1 would buy after 50 years? If the rupee’s purchasing power has dipped from 19.77 yen in 1985 to 1.72 yen today, then after 50 years can a rupee buy anything more than just a fraction of a yen? Unlikely, unless yen interest rate shoots up and rupee rate becomes close to zero, which is highly improbable. Therefore, this 50-year yen loan, with a 15 years lock-in period, is anything but free. It is in fact a rip off. By the time the loan is repaid in 50 years, India would have shelled out Rs 300,000 crores at least, or even more, depending on how quickly the loan is extinguished. This excludes interest of 0.1% on yen loan which would add to the cost. Yen is a dangerous currency and it would be imprudent to ignore its track record.

India can ill-afford to keep such a huge liability in yen unhedged. But even the cost of hedging rupee/yen exchange risk would be prohibitive. Initially India would be required to buy Yen 150,000 crore forward outright in the international market, and keep doing rupee/yen swaps – sell yen spot and buy yen back forward, matching with each due date of loan repayment installment. This process would continue till the entire loan is extinguished. This is called roll-over swap, which corporate in India execute to hedge currency exchange risk in external commercial borrowings. But, such swaps, on each occasion, would entail huge costs for the simple reason that forward delivery of yen against rupee would be at a premium so long as yen interest rate remains lower than rupee.

It is axiomatic that forward delivery of a currency yielding lower rate of interest would always be at a premium vis-à-vis the currency yielding higher rate of interest. The yen interest rate is now close to zero. The rupee repo rate (rate at which banks borrow from the Reserve Bank of India) is 6%. Thus, multiple swaps executed till the currency of the loan would be hugely expensive as forward premia would have to be paid by India on each swap. India would thus end up paying well over Rs 300,000 crores (multiplication factor 3.4 taken) on a most conservative estimate. Notably, rupee/yen quote will not be available directly in the international forex market; consequently, dollar being the intervention currency for India, swaps would have to be performed through dollar/yen quotes. Rupee would thus have be converted into yen only through dollar.

The above figures/calculations do not take into account 0.1% interest burden on yen loan. Today, interest rate in Japan is hovering around zero to fractionally negative, like in Sweden. On September 7, 2017, the Central Bank of Sweden held its benchmark interest rate at (minus) – 0.5%. Similarly, the Central Bank of Japan has slashed interest rate to just shade below zero. Tokyo Inter Bank Offer Rate (TIBOR) is around 0.06%. A ten year Japanese Government Bond yields barely 0.04%. Therefore, 0.1% interest rate that Japan would earn from India is a very lucrative investment opportunity for Japan, which is struggling to fight deflation for over 15 years. More the lock-in period/tenure of yen lending in India, merrier it is for Japan, and costlier it is for India.

Also read: The Long and Short of India’s Bullet Train

Did India really need this loan of $13.5 billion (Rs 88,000 crores = Yen 150,000 crores today) with a forex kitty of over 400 billion dollar? Would Japan proceed with the project if India declines to avail of the loan? These questions can have disturbing answers. Ideally, India should have considered purchasing only technology for bullet train without taking loan from Japan.

And now about the technical feasibility and economic viability of running a bullet train on a 507 km Ahmedabad/Mumbai track. This is Japan’s second export (in 53 years) of Shinkansen technology, after Taiwan, where it didn’t succeed. Japan did not transfer technology to Taiwan. Japan would obviously like to monitor track maintenance and other operating requirements on an ongoing basis to ensure its accident free track record and punctuality. So, Japan is unlikely to transfer technology to India. A study carried out by IIM, Ahmedabad, indicated that a 100 daily trips would be required between Ahmedabad and Mumbai to make the bullet train financially viable. About 35 trips are reportedly being planned.

Overall, the yen loan is a rip off, the project’s economic viability is suspect and India is unlikely to receive technology. Why commit Rs 110,000 crores of public funds then? Obviously, mediocrity is ruling the roost and experts with domain knowledge are not being utilised – a tragedy for India.

Bishwajit Bhattacharyya is former additional solicitor general of India and a senior advocate in the Supreme Court.

Read Full Post | Make a Comment ( None so far )

Globalization – What it Means …

Posted on October 25, 2017. Filed under: Business |

THE ORDINARY VIRTUES – Moral Order in a Divided World By Michael Ignatieff

A century ago, on the eve of World War I, the global advance of science and material prosperity made perfectly reasonable men look forward to a new era of humanitarianism and peace. In 1914, in search of that dream, the industrialist Andrew Carnegie established the Church Peace Union, which later evolved into today’s Carnegie Council for Ethics in International Affairs.

The 20th century did not work out as Carnegie imagined. In our own day, globalization has proved to be the most mixed of blessings. Nevertheless, the institution Carnegie fostered has continued to propagate his ideals. To celebrate its centenary, the Carnegie Council posed a question whose premise reflected the idealism of a vanished age: ”Is globalization drawing us together morally?”

The organization turned for an answer to Michael Ignatieff, who, as a moral philosopher now serving as rector of Central European University in Budapest, might have had good reason for wishing the proposition to be true. But Ignatieff is also a journalist who has seen humans do horrible things to each other.

One of the chief merits of “The Ordinary Virtues: Moral Order in a Divided World” is that the author discovered in the course of his research — or perhaps he knew all along but slyly withholds the insight — that he was asking the wrong question. The right question is: “How can we hang on to decency in a world where old patterns, good and bad, have been disrupted?” In addressing that challenge, Ignatieff’s admirable little book represents a triumph of execution over conception.

“The Ordinary Virtues” is a shotgun marriage of moral philosophy and global junketeering. Ignatieff traveled with a team from the Carnegie Council to Brazil, Bosnia, Japan, Myanmar and South Africa, as well as to Los Angeles and New York City’s borough of Queens, where they met with civic groups, as well as men and women on the streets.

With the exception of passages on Bosnia, which Ignatieff knows well, and Fukushima, which he writes about movingly, the reader rarely feels the sense of immersion-in-the-other that fine journalism, including Ignatieff’s, provides. The touching-the-bases format appears to have been the result of an imposed schedule. Nevertheless, locality itself matters, for it is locality, rather than globalization, that is the book’s true subject.

Ignatieff concludes that globalization has, in fact, shaped certain fundamental aspects of the moral reasoning of his interlocutors. The spread of democracy and of the idea of human rights universalized the notion that citizens have a right to be heard. The people Ignatieff speaks with have not only a sense of standing, but of equal standing. And even nondemocratic leaders find they must satisfy the aspirations of ordinary citizens.

But more democracy does not necessarily lead to more respect for human rights. Ignatieff furnishes the dismaying example of Myanmar, where brutal military dictators agreed to a peaceful transition to a political party led by the Nobel Peace Prize recipient Aung San Suu Kyi.

“Her example,” Ignatieff writes, offered Westerners “vivid, personal proof that the yearning for freedom, democracy and rights was universal.” But it was not so. “The Lady,” as she is reverently known, now presides over a regime that persecutes its Muslim minority, known as Rohingyas. Ignatieff finds that scholars and activists — the typical bearers of global moral discourse — support the ugly crusade.

What went wrong? Ignatieff explains that Myanmar is a plural society that never answered the primal question of who is “us,” and who “them.” Majority rule thus unleashed resentments that autocrats had suppressed, just as it had in the former Yugoslavia.

In fact, globalization had not only failed to overcome an ancient divide but had widened it, for now local Muslims were seen as the advance guard of a mighty wave. Not just these Buddhists, but “Buddhism,” was now at war with “Islam.” All politics is not local, Ignatieff writes, but political responses are rooted in local loyalties and antagonisms.

Yet this stubborn resistance to the universalisms that govern moral thought in the West is itself an alternative source of just behavior. This is the collection of habits and intuitions that Ignatieff calls “the ordinary virtues.”

People need a sense of moral order, he argues; they need to feel that their life has meaning beyond the mere struggle to survive. They need to feel that they have acted rightly. But before whom? Not before an abstraction like “mankind.” They think instead about themselves and people like them, family and friends, caste and community. This sense of kinship is in turn the foundation of the ordinary virtues: loyalty, trust, forbearance. This is what Ignatieff finds in Rio’s favelas, in the municipal workers of Fukushima, in the haggard, persistent survivors of genocidal violence in Bosnia.

Of course if we flip over the card of the ordinary virtues we find the ordinary vices: resentment, pettiness, chauvinism. The sense that moral obligation extends only to “us” is the source of the blood-and-soil nationalism now spreading across the world like a virus. The saving grace, Ignatieff argues, is that these intuitive moral systems are in constant contact with those of other people, and of the institutions that surround us.

Thus in a polyglot neighborhood like Jackson Heights, in Queens, diversity works not because immigrants believe in it as a principle, but because their “moral operating system” has been shaped by the community’s “tacit code of welcome,” its respect for privacy and, above all, the prospect it offers everyone of “a way up and a way out.”

Collective behavior is the consequence of a series of pragmatic accommodations. Difference is tolerated in the interest of group survival; it is not intrinsically admired.

Ignatieff notes that people in Jackson Heights live “side by side,” not together, and concludes that “it may be the case that the only realistic way for diverse populations to live together is to live side by side.” To adopt the ordinary-virtues perspective is to accept that such liberal principles as “cosmopolitanism” will probably not flourish outside laboratory settings like the university campus.

The ordinary virtues and vices are a human given. So is the inner world of moral intuition. The variable is what lies outside, which is to say institutions, understood in the broad sense of social structures of belief and practice, whether in the form of the corner barbershop or the political party.

Ignatieff concedes that the centrality of institutions has become a cliché of development economics and state-building. What distinguishes the ordinary-virtues perspective is the claim that institutions matter above all because they shape private behavior. “If the test of a decent society is that it allows people to display these virtues easily,” he writes, “what policies and institutions do we need to create so that virtue can remain ordinary?”

The problematic word in that sentence is “we.” If “we” believe that we should, and can, promote democracy abroad, then we seek — humbly, of course — to help democratic practices take root. But if people resist the moral abstractions we peddle — if that resistance is “an enduring element in ordinary people’s defense of their identities” — then our humility must be so much the greater.

The moral choices of people in Bosnia, or even Jackson Heights, are founded on a world they know, and one we don’t. Think, for example, of the lives lost and the billions of dollars wasted trying to install a Western legal system in Afghanistan. Perhaps we would have been better off helping Afghans achieve Afghan justice.

If globalization will not save us, then there are no big, all-inclusive answers — not technology or democracy or spiritual rebirth or anything that happens to everyone everywhere. There are only small, local answers, though they may well incorporate the technologies or policies dreamed up by the benevolent globalizers.

Read Full Post | Make a Comment ( None so far )

Raghuram Rajan …

Posted on September 8, 2017. Filed under: Business, Personalities |

Rajan left the central bank last September after unnerving political leaders with his outspoken nature. Several months later, Modi blindsided the nation by scrapping 86 percent of currency in circulation, saying the move was essential to unearth unaccounted wealth and fight graft. Since then, speculation has raged over who thought up the policy, with the debate getting hotter.

Excerpts from what he said on the launch of his book –

Q – “I do what I do ….” I thought your kids did not like the title. What was in your mind about this title?”

A – “My wife liked it. She did….. We were looking for a title and she has always been a good sounding board and I had something like sort of RBI Days and all that. She remembered this statement that it came from one of the monetary policy press conferences. As it was ending I was asked whether I was dovish like Yellen or hawkish like Volcker.

‘I understood what the reporter was asking, but I wanted to push back on the attempts to pigeonhole me into existing stereotypes. …………… Somewhat jokingly, I started in a James Bond-ish vein, ‘My name is Raghuram Rajan —- To my horror, mid-sentence I realised I did not know how to end in a way that did not reveal more on monetary policy than I intended.

‘So with TV cameras on. came the title of the book ‘I Do What I do’ reflects the serendipitous nature of public life.”

Exactly one year after his term as Governor of the Reserve Bank of India came to an end, Raghuram Rajan published his book with his “commentary and speeches” to convey what it was like to be at the helm of the central bank in “those turbulent but exciting times”.

Rajan has stayed away from the press since. He, however, made an exception recently for the media team at Chicago Booth, where he is currently teaching. During the interview, Rajan touched upon the financial crisis of 2008 as well as his recent stint at the RBI.

When Raghuram Rajan stepped down as the Reserve Bank of India’s governor in September last year, he left a gift for his successor — the gift of silence – to allow the new governor time and space to give voice to his ideas. Rajan has stayed away from the press since.

The man who predicted the 2008 global financial crisis also presaged the damage Prime Minister Narendra Modi’s unprecedented cash ban would cause to India’s economy. Raghuram Rajan was governor of the Reserve Bank of India in February 2016, when he was asked by the government for his views on demonetization, according to Rajan’s book, “I do what I do”, the first time he’s spoken about his experience in the country.

“Although there may be long-term benefits, I felt the likely short-term economic costs would outweigh them and felt there were potentially better alternatives to achieve the main goals,” he writes. “I made these views known “.

Rajan left the central bank last September after unnerving political leaders with his outspoken nature.

Several months later, Modi blindsided the nation by scrapping 86 percent of currency in circulation, saying the move was essential to unearth unaccounted wealth and fight graft. Since then, speculation has raged over who thought up the policy, with the debate getting more divisive last week as a slew of data showed demonetization contributed to a sharp growth drop ..

Raghuram Rajan and the Dosa

Rajan was replying to a question from a Dosa-loving engineering student at a Federal Bank event in Kochi.

“In real life, I have a query on Dosa prices — when inflation rates go up, Dosa prices go up, but when inflation rates are lower, the Dosa prices are not lowered. What is happening to our beloved Dosa, sir?” she asked. His response –

“The technology for making Dosas hasn’t actually changed. Till today that person puts it (Dosa batter) on the tawa, spreads it around and then takes it out, right? There has been no technological improvement there.

“However, the wages that you are paying to that gentleman, especially in a high-wage sort of state like Kerala, are going up all the time,”

“So, what happens is that in an economy which is growing and when there are sectors which are improving technologically while other sectors are not improving their technology, the prices for the goods manufactured by sectors, that are not improving their technology, will go up faster”.


Read Full Post | Make a Comment ( None so far )

« Previous Entries

Liked it here?
Why not try sites on the blogroll...