Change of Guard at RBI

Urjit Patel’s untimely resignation throws up more questions than it answers. The government’s handpicked replacement to Raghuram Rajan has left midway after a widely reported conflict with the government. His replacement is already being vilified for being an MA in history, as if economics is a part of STEM and not humanities. The usual suspects who painted Patel as a government crony during demonetization have now painted him as the Neelkantha who finally said no to poison. After Viral Acharya’s public acknowledgement of a rift, the financial press has had a busy couple of months speculating and vilifying the government for undermining the independence of the Reserve Bank. Unnamed sources are given more weight than official government spokespersons in order to make for juicy headlines and doomsday predictions.

change of guard

The truth though may be a lot more nuanced and a lot less forthcoming. Former RBI governors and deputy governors have acknowledged how spats between Mint Street and North Block are not unique. The novelty is the public nature of the row this time around which has given the financial press a lot more to speculate about. Urjit Patel’s resignation is no doubt a loss for the nation of a very capable economist and central banker who will leave a rich legacy for his actions on bank cleanups and taming inflation. Yet it should not be used as an excuse to gloss over any shortcomings.

It was going to be a tough task for anyone to replace the larger than life persona of Raghuram Rajan. Rajan was a very effective communicator, an ability which is very much valued for a central banker. Urjit Patel on the contrary was reticent and media-shy. He was touted as perhaps not the best communicator which led to speculation about government’s frustration at not having the ear of a trusted lieutenant. He was also accused of being unavailable to India Inc. which always makes markets jittery. But perhaps a more serious charge was a faulty inflation forecasting mechanism which has been overestimating inflation. Central bankers are often disparaged if inflation exceeds forecasts but in a developing country like India the contrary must also be viewed as a significant policy failure. The need for growth and jobs means that a calibrated tightening stance of RBI, when unwarranted, could spell doom. In a democracy, nobody gets away without oversight. Independence and accountability are two sides of the same coin. The Monetary Policy Committee’s most dovish member, Ravindra Dholakia, has long been critical of RBI’s inflation forecasting mechanism. Case in point being the recent loss of state elections for the BJP which can also be attributed to low rural inflation leading to depressed rural wages.

Amid this sentiment comes the 25th RBI governor, Shaktikanta Das who prima facie appears to be a yes-man appointment by the government of the day. Yet his credentials are promising and to write him off as a stooge seems premature and motivated. The markets have cheered his appointment with the Sensex posting heavy gains and the 10 Year GSec yield also falling in hopes of a change from calibrated to neutral stance of RBI and a rate cut as early as next year over falling CPI and economic growth. The rupee though has lost some of its value after Patel’s resignation. Fuel prices continue to stay benign even after cuts announced by OPEC. Narendra Modi must consider himself lucky if the trend continues a few more months as it will effectively ensure lower inflation and a smoother path to re-election.

There is wide ranging speculation as well on extensive farm loan waivers and bailout packages for rural India being brought about in an election year which can lead to slippages on the fiscal front. The government though has so far seemed confident of reaching its fiscal math; so much so that it had already reduced borrowing targets during the first half of the fiscal. Indian politicians have long been guilty of distorting farm economics and handling agriculture with a short term view that has meant more pain for farmers. Farm sector reforms have always seemed elusive for fear of alienating any number of vote banks. The current regime too has failed to bring about effective farm reforms that can ensure that market dynamics play a bigger role in Indian agriculture than upcoming democratic compulsions. They must now not slide down the path of populism like their predecessors did, which ultimately led to double digit inflation. Sensibility must prevail in spite of friendly faces at the helm of RBI and in advisory roles as CEA.

The Crude Conundrum


If there ever was a kryptonite for the Indian economy, crude oil seems to check all the right boxes. India’s vulnerability to crude oil prices has meant that the economy must constantly adapt to rising prices of the commodity. As Brent Crude has rolled down from its highs of $86 to the current low sixties, its impact on Indian economy is evident. Rupee has gained steadily against the dollar from being at 74 per dollar to going below the mark of 71 currently. Its strengthening has largely followed the fall in crude. The RBI was not seen intervening in the currency markets signaling a rise in Forex reserves in days to come.

In the last month, India’s outlook seems to have swung dramatically from talks of how gas stations will calibrate pumps if petrol prices reached the Rs. 100 mark (which some people likened to the Y2K bug) to recent reports of easing pressure on India’s CAD. FIIs seem to be returning in droves as there were net positive inflows in November till date after historically worst outflows in October. Also encouraging signs are decreasing yields on 10 year bonds along with a CPI number below RBI’s long term target. CPI has been benign with RBI cutting inflation expectations in the second half of the fiscal.

Easing crude prices are vital for the country which is the third largest importer of crude. Rising petrol and diesel prices can wreak havoc on RBI’s long term inflation target of 4%. This reduces discretionary spending of a burgeoning middle class whose consumption spree can catapult the Indian economy to never before seen highs. Indians must be extremely pleased by Trump’s Twitter diplomacy which seems to have a lot more effect on global crude prices than OPEC’s decisions on trimming supply. As a net commodity importer, India must also be grateful as Texan oil fields have ensured that the US has emerged as the top global oil producer, unseating Russia and Saudi Arabia, effectively countering the OPEC hegemony on oil.

Coming to domestic trends, with tensions subsiding among the Reserve Bank and the Finance Ministry there are hopes of liquidity being released in the market after government complains regarding a squeeze on MSME lending. With several public sector banks reeling under RBI’s PCA and fears about an NBFC liquidity crisis after IL&FS defaults, Indian economy saw record outflows of foreign funds. The government seems to be fairly confident about sticking to its fiscal deficit targets after GST collection showing positive signs in October and disinvestment being fashioned via buybacks of by PSUs. Ominous signs are subsiding for a Government looking for re-election in 6 months’ time.

Yet threats for India loom large on the horizon as OPEC members strongly advocate supply cuts with Saudi needing crude prices in the low seventies to balance budgets. US yielding on Iranian crude imports has been positive for now but it remains to be seen whether Iran will be able to export even at current levels in the near future. With the Venezuelan economy already in the ICU crude supply falls can reverse the bearish sentiments. India must also be wary of an increasingly hawkish Fed as rising rates in the US spell doom for Indian equities and bonds. Reports suggesting a pause may well bring some cheer to Indian markets where bears seem to be subsiding among equity and currency routs.  If the Fed goes for another hike in December, India along with other emerging markets may again see outflows putting pressure on the Rupee in an election year.


Does India Need A Caste-Based Quota In Cricket?

Let me state at the outset, my thoughts expressed below are inspired from an article of the same name by (Link for the same is given at the end of this piece). When I first came across this article from The Wire, I found the headline so ludicrous and preposterous that I decided against reading the full thing. Something inside me though felt that not even the leftists and ultra-liberals could be so cavalier with their thoughts. So I built up some courage and decided to read it.

cricket reservation

It was as absurd as the headline made it out to be. The article talks about how Dalits, Scheduled Castes and Scheduled Tribes have been grossly underrepresented in India’s cricketing history. Cricket is one of the few things in the nation that unites the populace across caste, creed, religion and all other made-up identities. Even the most ardent Shiv Sena follower will cheer for Kuldeep Yadav in any game. Do we really need this dynamic to change? Do we really wants Jats, Gujjars, Marathas or Patidars asking for reservation in the Indian cricket team as well? The correct answer is No. Cricket has proved to be a unifier beyond cultures and by creating fault lines in a game we all so love the article might even be promoting anti-nationalism. (Yes folks, I just called them anti-nationals).

Another argument against this is what purpose does reservation in cricket serve? Why is a caste-based representation in cricket required? One can make valid points about caste-based reservation in say local politics, but why do we need the same in cricket? The article talks about how this can inspire Dalits to have heroes to look up to. This is where the writers end up justifying a flawed ideology that a Dalit can only be inspired by fellow Dalits. There are several successful Indian cricketers who did not come from prosperous backgrounds and several faced financial difficulties in their life before becoming successful. Why does a prospective Dalit cricketer have to look up to a fellow Dalit cricketer to be inspired? Why can’t they look at Ravindra Jadeja, born to a father who was a security guard and a mother who was a nurse? In fact Jadeja comes from among the most upper-caste backgrounds. He belongs to the same caste as K. S. Ranjitsinhji and K.S. Duleepsinhji, royals after whom the Ranji trophy and Duleep trophy are named? Did Ravindra Jadeja, in spite of being a Rajput not face difficulties? Can he not be a role model for an aspiring Dalit? In fact several of the current crop of players came from relatively weaker economic backgrounds, namely Umesh Yadav, Bhuneshwar Kumar, Harbhajan Singh, Virender Sehwag, Irfan and Yusuf Pathan. Aren’t they suitable role models for anyone from an economically disadvantaged background?

One of the strongest arguments against reservation is the argument of merit. Anyone who has tried their hands at playing professional cricket knows how competitive it is. In such a scenario, is it really the best idea to bench a better player for the sake of a sub-standard player just because he is a Dalit? What kind of example are we laying down here? There’s a saying in team sport that you are only as strong as your weakest player. Are we really saying that a player’s talent and hard work matter less than his caste? Reservation in education and jobs has already proven this, can we at least leave cricket alone? The article does try to address this point in a farcical manner that I believe serves more to discredit its authors than in proving their point. They cite the example of Hardik Pandya who scored his maiden first class century in a Test match and not in a domestic league game. This is then taken as proof that statistics and batting averages are irrelevant as far as actual performance in international cricket is concerned. It conveniently leaves out Hardik Patel’s performance in IPL that ended up in him gaining a spot in the Indian team and decent performances in limited overs cricket catapulted him in the Test side. The writers probably knew that their argument was already flimsy and yet tried to justify it by putting up fragile arguments.

I would like to now extend the frivolous logic of The Wire. Why doesn’t The Wire have a reservation for the number of articles published on its site? Do they maintain a ratio where certain articles are published only by Dalits? What is the composition of their editorial team? How many of them are from backward castes? Why don’t they try and promote equality by ensuring that the proportion of employees they have is the same as the caste based bifurcation of 130 crore or so Indians? They conveniently advocated adequate representation based on population in the Indian team why not practice what you preach.

At last I would like to end the article on a lighter note by saying that India’s first Dalit cricketer was selected in the Indian side solely on merit and skills and not to promote a liberal utopia where we have reservations everywhere. I am talking about Kachra from Lagaan. Aamir Khan as Bhuvan picked Kachra (an untouchable from a backward class) in his team because he was a promising wrist spinner, maybe Aamir Khan already knew that Indian wickets were spin-friendly and English cricketers are traditionally weaker against spin, I doubt he selected Kachra only to advocate a case for reservation in Indian cricket.

The link to one of the worst piece of logics I’ve ever encountered:-

Will The Real Indian National Congress Please Stand Up

The Indian National Congress (INC) is branded as India’s Grand Old Party owing to the crucial role it played during India’s pre-independence era. Its leaders were the primary representatives of India’s populace desiring independence from their British masters. It attracted leaders from various walks of life, from various religions, various backgrounds, various castes and various religions. Its Presidents have been Bengalis, Britishers, Parsis, Muslims, Hindus, Brahmins, Men and Women. It had time and again shown that it represented a variety of interests and they all converged to the same goal – the betterment of the nation.

Yet one wonders, as to why a party with such a rich legacy has become nothing more than a rallying point for sycophants of the Nehru-Gandhi clan. Why is it that keeping all merits aside, the party is unable to look beyond a 47-year old youth leader, with at best a patchy electoral history. The answer is simpler than you think.

The fact is that the INC of the day is not the INC of yesteryears. It is not the Indian National Congress that had leaders like Subhas Chandra Bose, Sardar Patel, Dadabhai Naoroji, Lala Lajpat Rai and many more. The party has split time and again and the current version was founded by none other than Indira Gandhi. In 1969, Congress party President S. Nijalingappa expelled Indira Gandhi from Congress which prompted Ms. Gandhi to launch her own version of Congress called the Congress (R). In 1978, she further split this political party to form Congress (I), notably, the ‘I’ stood for Indira. When Gandhi first split the party in 1969, the original party under S. Nijalingappa was declared as Congress (O). This group later merged with the Janata Party in 1977. The Janata Party struggled after its government fell and was led by Subramaniam Swamy who in 2013 merged it with the Bharatiya Janata Party (BJP). The Election Commission decided to declare the Congress (I) as the original Congress prompting them to drop the ‘I’ since there was no other Congress party at the time in existence.

So what we now know is that the original Congress party split into two groups. One was converted into a personal fiefdom by Indira Gandhi and later by her family barring a few years when its leadership was not with the Gandhi clan (which the current leaders despise and refuse to acknowledge) and the other group merged with the BJP. So in some way, BJP may have as much claim to the INC legacy as much as the current Gandhi fiefdom has. But let’s forget for a moment as to who is carrying the torch of the real INC.

The issue is that the current INC is not a political party that was founded on principles of internal democracy. It was, from its inception (in 1978 and not in 1885) the brainchild of Indira Gandhi and has been used as a hand-me-down by the family ever since. There is no space for dissent or alternate views as it is controlled by the promoter family, so why should they have internal democracy. The BJP may not be an ideal democracy but at least it recognized the merit of an erstwhile tea-seller to make him the Prime Minister.

Your Move RBI

The upcoming RBI policy meet will be an interesting one to watch out for. The monetary policy has been quite hawkish on interest rates and inflation targeting of late. Based on their statements after the policy meets, one can understand that the majority of the committee is led by a very conservative mindset that is more concerned about avoiding inflation rather than stimulating growth. With signs of an economic slowdown hitting home, the policy meet may just have come at the right time.

If the government had its way, it would prefer a significant rate cut which would enable higher private investment. Yet, we have seen time and again that the economy does not function that way. It usually takes months before RBI rate cuts are actually transferred to the borrowers and that too in a Rajiv Gandhi style, only 15 paise reach the public for every rupee spent by the government. Banks have had surplus liquidity since demonetization which can be evidenced by low interest rates on deposits. However, banks have burnt their hands and the NPA problem refuses to die down making ambitious lending even more dangerous.

A narrative is being created today that Indian economy is in the doldrums like narratives created before, that of India being intolerant or cow vigilantes and lynching mobs having a free hand. The fact is that when structural reforms like GST and demonetization are undertaken, you cannot expect the economy to absorb it without shocks. The same way that when you are driving a car on the highway and your engine overheats, you can’t expect it to correct itself while you go on driving at 100kmph. The economy needs a start-stop button to reset itself.

Yet, what is important to note is that a stimulus is not the answer to a restart. The government is obviously aware that breaching the fiscal deficit is not the answer to its media-hyped woes. It must therefore hope and rely on a tight-lipped monetary policy committee to provide some easy credit into the market. The MPC on its part must again focus on how its inflation reading has been faulty in the past. Former Finance Minister and full-time critic of the current finance minister, P. Chidambaram has also advocated a cut in rates. Chidambaram actually advocated a 100 basis points rate cut but was quick to realize that the MPC cannot stomach a rate cut so big, lest it be seen as being in bed with the government.

The MPC must not worry about media opinions about its independence or competency. A bunch of arm-chair economists and prejudiced media personnel cannot decide monetary policy at the highest echelons of Indian economics. That a rate cut is required seems to be obvious to the government, but one believes that the MPC would be unwilling to cut rates at two back-to-back meetings even though it may be of the lowest possible number i.e. 25 basis points. 

Farmers = Money-Guzzling Demigods

India’s agriculture industry has been broken for decades without any sustained reforms being undertaken to improve lives of farmers and consumers. It was expected from the government of the day to undertake structural reforms, seeing as how Narendra Modi has been targeting doubling of farm incomes. However, like past governments, Modi’s men have also sought to target the symptoms rather than the root cause of the disease. The key to the destruction of the farm sector in India has been the loan waivers. Seen as a farmer-pleasing populist measure, loan waivers make little economic sense, if any. The agro industry is broken because of low productivity and disguised unemployment. Farming still employs about 50% of India’s workforce while contributes roughly 13.7% to the GDP as per 2013 estimates. Clearly India needs to transfer this idle labor elsewhere. Farming in India is still largely dependent on rains and other modes of irrigation are vastly underdeveloped. 

Productivity of Indian agriculture is pathetic owing to smaller land holdings of farmers and lack of irrigation facilities. Indian farmers have not been adept at adopting technology which has led to their own downfall. The opposition to Genetically Modified (GM) crops by groups with vested interest and lack of scientific knowledge has vastly complicated the scenario. Changes are required not only at the source but also in the distribution channels which are thronged by middlemen who work neither in interest of farmers nor in interest of consumers. They serve the sole purpose of inflating prices by hoarding and depriving farmers of their rightful share. 

Right from the times of “Jai Javan, Jai Kisan”, India has cultivated an unblemished and untainted image of farmers which is misplaced. Farmers must occupy the same position in the Indian economy as any other worker, professional or businessman. By granting them a noble status and not permitting market forces to have a free hand in agriculture, the governments have effectively destroyed the agriculture industry and doomed lives of farmers to the extent that farmers do not wish their wards to enter the farming industry. Farmers themselves are not beyond reproach. They have done their fair share in tarnishing their own image by destroying crops when a surplus is produced and vehemently seeking bail outs. By persisting with exempting agriculture income of farmers from income tax, they have been granted a superior status and this emotional attachment to farming must end. Are poor people in other sectors less vulnerable and important than farmers? 

The reality is that farmers, constituting more than half the working age population, are far too important a vote bank. This has given them a disproportionate bargaining power. Yet, history has shown that whenever a group of people has been used as a vote bank, they are the ones to have suffered at the hands of the ruling dispensation. By empowering their vote bank, the political party allows them to think for themselves whereas by ensuring the continuation of their poor and downtrodden status, the politicians can champion themselves as their knights in shining armor and peddle votes. Take for example the Muslims, the Dalits and now the Farmers.

The vilest economic decision ever taken has been farm loan waivers. It is the worst form of dole out of taxpayers’ hard earned money. Farmers have learned how to hold the government hostage and seek waivers from them. Not only does this lead to poor credit discipline, it makes banks wary of advancing credit to farmers and thereby makes farmers easy prey for moneylenders. This is why most private sector and foreign banks shy away from lending to farmers but state run banks with their priority sector commitments must undertake this charade. If home owners with their burden of EMI on home loans start committing suicide, will the government start waiving home loans too? Governments have aggravated the issue by not pulling out workers from the agro industry and now these farmers, dependent on rain fed irrigation have no way out when the rain gods fail them. The BJP has not learnt from the mistakes of past and in order to please this massive electoral vote bank has decided to grant such temporary lotteries to farmers. If waiving loans of farmers is acceptable, why not waive other forms of loans like student loans, home loans, personal loans etc. making the list endless.

The sole savior of the farming sector would be a robust manufacturing industry wherein surplus labor from farming and allied industries can be transitioned to a manufacturing industry allowing farmers as well as farm labors a better standard of living. This, coupled with better productivity, can allow a sustained reform of the sector. It can be achieved by instituting better research institutes for this sector, promoting GM crops and building a culture of technologically advanced farms. Also required, is the image revamp of the farming sector and not projecting them as demigods but as a small part of the larger economy. The sector has long escaped free market forces because of the superior status granted to it. Reforms must be made to distribution channels by allowing farmers to sell their output directly instead of through the Agriculture Produce Market Committees, known for their corrupt and inefficient working.

An idea that has not been explored well is corporatization of farms. Allowing corporates to buy huge tracts of land and conducting agricultural activities is a sure-shot way of revamping the sector as it will ensure better productivity, formalizing farm labor and better servicing of consumers. It will expand revenue streams for the government, solve the problem of distribution of the produce, lead to employment of better and superior technology and transfer risk from individual farmers to corporations which have a greater capacity to absorb it. This will however require grand structural reforms to irrigation facilities and allowing corporates to map out their own distribution channels. It will upset several vote banks but in the long run will lead to gainful employment of labor and better productivity thereby forcing the agriculture sector to pull its own weight in the economy. 

Farm loan waivers do nothing but give temporary relief to farmers until he takes a loan again from a government bank that is obliged to grant him a loan; poor rains lead to a crop failure; he defaults on his instalments; farmers join hands and demand loan waivers; governments buckle under pressure because well, farmers are superior to the rest of the populace and our money must always bail them out.

India’s Tryst with Cows and Lynching

The India of the day is viewed by many observers, within and outside the country as a Hindu Pakistan; ergo a nation founded on the false belief of the supremacy of a religion. We are now viewed as violent cow worshipping heathens who will do anything in the name of an animal. The truth though is hidden beneath layers of fiction and prejudices. Multiple new age left-aligned blogs and newspapers have come up that serve the sole purpose of portraying the BJP as a downright communal party for its avowedly pro-Hindu stance and portray Muslims as the victims of Hindu violence post the election of Modi.

There have been attempts to gloss over violence of Muslims against Hindus, as in widespread riots in Bengal, and the role played by other political parties in stoking communal tensions and delving into appeasement politics. The point being that Hindus are no more violent than they already were before the BJP came in neither are Muslims being victimized more than they were before. The public will always react to a narrative that the media creates. Blogs and websites that come up by touting noble ideals of freedom of speech are nothing but openly left aligned mouthpieces that are out to convince you that India has descended into an Emergency and that the nation has been overrun by criminal cow worshippers who will lynch you if you eat beef. By equating a nation that upholds its constitution and judicial values to a nation that has descended into Emergency, the journalists are either propagating their stupidity or are trying to convey their anti BJP credentials.

Fact is that cow-related violence is nothing new in the subcontinent. A vast majority of Indians (93.4 % to be precise) as per NSSO 2011-12 data are non-beef eaters. Cows are revered in Hinduism not only on account of their religious significance but also their economic utility. According to Martin Harris, an American anthropologist, India’s rural economy is dependent on cattle. Cows provide milk, their dung when dried serves as fuel, and they are in Harris’ words “Indian peasant’s tractor, thresher and family car combine”. Cows can survive in drought conditions and are symbols of wealth. More than being a symbol of Hinduism, cows are a source of economic wealth for any person who owns them, regardless of religion.

There have been well documented cases in Indian history of illegal smuggling of cows across state and national borders. It is this illegality that elicits a response from cow worshippers who are often distressed by the hurt caused to an animal they hold so dear, which is noble if done by an American animal rights organization (read PETA) but intolerant if done by poor rural Indians. No one denies that there are cases of violence, but these occur in the garb of cow worship and often called as alleged cow related violence perpetrated by Hindu mobs on Muslims with no hard evidence and only hearsay. Mob violence is an ugly truth in India and by linking it to cows, the media is doing the nation no favors. It is stoking a communal flare that refuses to die down.

What angers the populace is the one-sided reporting and the creation of a larger narrative that looks over other aspects of governance. When riots in Bengal erupted because of a facebook post that Muslims found blasphemous, no one talked about freedom of speech but when AIB puts snapchat filters of a dog on Modi’s image we are well reminded of our constitutional liberties and rights to expression. How come after attacks on Charlie Hebdo, Indians were quick to change their profile pictures to Je Suis Charlie, but at home, the recent riots in Bengal are covered as a conflict between Modi’s man (the Governor of the state) and Mamta Banerjee and not in the nature of violence perpetrated by Muslims on Hindus. How come an attack on Amarnath Yatris or that of lynching of Kartik Ghosh does not invite as much as condemnation from the popular media? The fact that you are sitting there scratching your head as to who is Kartik Ghosh proves the biased reporting. Where are the #NotInMyName protestors now? Are they against lynching in general or against lynching of Muslims only? The nation is no nearer to being a Lynchistan than it was before. The nation is no more intolerant than it was before.

Muslims and Hindus are victims of violence all the same. But by promoting a narrative that India is witnessing Hindu terrorism due to the BJP or Narendra Modi is lynching of the truth.

Are you ready for a Dutch Trump?

The general elections of Netherlands, scheduled to be held on the 15th of March, 2017, may seem unimportant, yet the Dutch hold the key to unleashing greater hatred and intolerance in the so called ‘civilized’ western world. Liberalism is to the Dutch what oil is for the US. Netherlands is literally the embodiment of liberal democracy with the country having legalized prostitution, abortion and euthanasia. They have a free drug culture and were the first nation to legalize same-sex marriage.
Yet, for a country marked by so many liberal firsts, it comes as a surprise that one of the favorites for the elections is a hardcore right winger, Geert Wilders of the Party for Freedom (PVV) who holds the distinction for comparing mosques to Nazi temples and the Quran to Mein Kampf.

The Dutch elections aren’t that complex. It involves elections to the House of Representatives comprising of 150 seats. The Dutch have decided to count the votes by hand after alleged hacking attempts by Russian groups. There are a striking 82 parties vying for these 150 seats making an outright majority for one particular party improbable, if not impossible. The Dutch hold the unenviable distinction of no cabinet having finished their term since 2002.

The belief that Wilders might get elected is indicative of a populist turn in the European politics that began with Brexit. It seems that the Europeans are tired of their capitalist, immigrant friendly societies. A potential Wilders prime minister, howsoever unlikely it may seem (even a Trump presidency was unlikely), could be the next step in the wars against globalization that have swept the West.

This resentment against immigrants is nothing new. Such resentment might actually be able to trace its roots to the Native Americans who must’ve been pissed off by the arrival of Columbus. However, after the acceptance of Donald Trump, it most likely isn’t politically incorrect to keep out immigrants. While the United States is a country of immigrants, the Netherlands has a significant native population which may feel that it is well off without immigrants. It is this ideology that is gaining acceptance around the Western world leading to greater popularity of right wing leaders like Geert Wilders. To be honest, Geert Wilders does have several characteristics that remind you of Trump. While he may not have talked about building a border wall, he does have a pathetic hair-do that is the only identifier that he needs. Wilders has proposed leaving the EU and the euro if he’s elected, leading to further fragmentation and break-up of the European Union that is already unstable owing to several nations vying for an exit.

If the opinion polls are anything to go by, it is the PVV that is poised to emerge as the single largest party. However, due to its unnerving anti-Muslim propaganda, it may not be able to stitch together a steady coalition. Riding under his own version of “Make America Great Again” i.e. “The Netherlands is ours again” Mr. Wilders has been rubbing the other parties the wrong way. Several parties have now outright rejected a coalition with Wilders’ PVV. If history is anything to go by, the PVV buzz always fizzles out on the Election Day. Yet, Mr. Wilders is not perturbed and has been vocal in his agenda to ‘de-Islamize Netherlands. What may calm the Dutch though is the fact that most polls conducted in December predicted the PVV to win around 37 seats. However, their current tally as per the polls seems to have leveled around 29-33 seats.

The current coalition of the conservative People’s Party for Freedom and Democracy (VVD) and the Labor Party (PvdA) under the Prime Minister of VVD’s Mark Rutte seems unlikely to take on an emboldened PVV. In the improbable scenario that they do manage to chalk up a coalition, keeping the single largest party (most likely the PVV) out of the coalition might be seen as going against the will of the people. It is PvdA, i.e. the Labor Party that is poised to emerge as the biggest loser as it will cede territory to the PVV and other pro-European parties.

If Wilders does end up winning the majority vote, an alternate coalition (one excluding the PVV) will be a complex one having no less than 5 parties, as suggested by Rem Korteweg, senior research fellow at the Centre  for European Reform (CER). Yet, not all is well, as the far left Socialist Party, which is apparently the third largest party in Parliament, has ruled out working with VVD due irresolvable differences. The increasing threat of Islamic terrorism posed by migrants is resonating with the voters of Netherlands who are already in acquiescence with Wilders’ propaganda.

For now though, it falls on the undecided voters to realize whether they are ready to fall in line with an anti-Muslim venom spewing candidate or maintain the status quo, which an increasing number of voters find unsavory.

-First seen on The Economic Transcript

Why Universal Basic Income

The idea of a Universal Basic Income has been mooted for quite some time across the globe in various forums. So much so that such an idea has entered the public discourse frequently and even the average Joe has an opinion about whether it must be implemented or not. Universal Basic Income or UBI is a form of social security in which all citizens of a country are assured a fixed basic income regardless of their economic or social status.

The recently concluded Economic Survey by the Indian Finance Ministry dedicated a chapter to UBI in which Chief Economic Adviser Arvind Subramaniam talks about deliberating on UBI in India. The fact is that UBI is not new for India. A trial has been successfully conducted in rural Madhya Pradesh. The results so far have been encouraging. Yet, to implement the scheme on a nationwide basis remains a humongous challenge.

For starters, India already has more than 1000 public welfare schemes run under the aegis of both the central and state governments. Although several of these schemes are running inefficiently, abolishing them will be political suicide, even for a politician as popular as Narendra Modi. UBI can only work if these other welfare schemes and subsidies are abolished in favor of the universal income. In the Economic Survey, Arvind Subramaniam suggests a level of $9 per month for every adult Indian as the ideal level for a universal income which amounts to roughly Rs. 600 per month per individual. Subramaniam suggests that this amount, equivalent to roughly 5% of the GDP can be recouped by re-routing money from the numerous welfare schemes.

This brings us to the next problem i.e. should the income really be universal? What sense does it make to pay a destitute homeless man the same amount as is paid to Mukesh Ambani. In fact why even include the numerous people like Mukesh Ambani in the scheme at all? Don’t worry, Subramaniam has you covered. As per his calculations, only about 75% of the populace will be covered under ‘Universal’ Basic Income. However, the Indian state has been historically poor in identifying and separating the poor and needy from the well-off. This has been the chief reason for the failure of the numerous welfare schemes, apart from rampant corruption and red-tape of course.

Yet another argument against UBI is that it promotes laziness or disincentivises hard work. However, one can safely assume that a basic income of Rs. 600 per month is not enough for sustenance but still may be enough to abolish all subsidies and yet ensure that the poor can afford the basic necessities. Several arguments were put forth that such an income might be wasted away on alcohol and gambling. On the contrary, in the trial held in Madhya Pradesh, it was observed that such an income actually empowered women instead of it being a source of misuse in the hands of the menfolk.

The chief benefit of UBI though will be that it would enable the nation to pull a majority of its poor above the poverty line. This achievement is superior to what the governments in the past 70 years since independence have been able to do. On top of that, it ensures that the government’s welfare spending suffers no leakages, thanks to an almost universal Aadhar coverage. The only logistical upgrade required would be an easy access to banking services or greater penetration of digital payments.

By putting money directly into the hands of the needy, the government is eliminating scope for leakage and corruption. It also eliminates the paternalistic role of the government in which it assumed that people were incapable of making decision as to what should they do with their money. The government effectively hands over this responsibility to each and every individual thereby promoting greater freedom and less interference.

UBI promises to be a revolutionary idea, yet it is the immaturity of Indian politics that prevents us from implementing this idea. Such a revolutionary step is bound to ruffle the opposition’s feathers. There are several interest groups who will be negatively affected and who may make it their life’s mission to see that such a step is never implemented. All that matters is the will of the ruling party to implement such a step and for the people to give the government some time before they can reap the benefits of such a bold policy decision.

Demonetization – The Rights and the Wrongs

As the nation comes to grip with the fact that their money has overnight become virtually worthless, one can’t help but wonder about the origins and consequences of such a move. By effectively wiping out 86% of the cash in circulation, the Narendra Modi government has created a cash crunch so terrible that it may take months for growth to bounce back. This is where the media opinion has acted as the executioner by looking at the problem from a short term and naïve perspective, not realizing the wide ranging ramifications it can have.

First of all let’s understand the basic reason for this move. As touted by the Modi government, this move is a fight against black money and fake currency induced terrorism. Note how the Kashmir unrest that was at its peak died down instantly with no purported truce between parties concerned. This is the greatest achievement of this move and some might feel everything after this will go downhill. Now the fight against black money is a lot more complex than any of us can imagine.

It’s been said that the money is not a stock but a flow and this is not an effective way to target black money. However, one must realize the amount of political capital that Narendra Modi has at stake due to this move. This move hits hard at the middleclass traders whose businesses are essentially undergoing a recession as people begin to postpone conspicuous consumption. This is the principal vote bank of Narendra Modi and this move has the ramifications to upset this class and turn them against this government.

If Narendra Modi has effectively gambled on his chances of getting elected again, one must realize the amount of planning and thought that could have gone into the action. The government is not stupid. It has the vast experience and knowledge of the tax authorities and the Reserve Bank at its disposal. It would be childish to assume that the government has no idea about the loopholes in this action. As I hear from the community around me, people with reach have effectively managed to convert this money into gold, real estate etc. Others have found ways through commission agents to convert their old notes into new notes by paying the same amount as they would have if they had honestly paid their taxes before. Therefore, even though they get to keep their money, it is still unaccounted and they have ended up losing as much as they would have if they had been honest about it. Also it can come back to nip them in the bud.

Chances are we shall soon see action against other means of stashing this illicit wealth. If that does not happen, this move could be considered a mediocre success as far as curbing black money is concerned. Then again, politics is a game of optics and illusion whereby Modi is showing that he has the balls to take action against black money whether that happens or not is a completely different issue. This sole display of a 56 inch chest can garner him several followers.

Let us now move ahead to the way this move has been received by the country at large. Several media reports talk of the situation as an economic emergency. Almost all sources of media have decided that this move is anti-people and anti-poor. What they fail to grasp is that while they try to win this battle, the government has already run away with the war. No matter how many interviews, testimonials and alleged deaths are shown, the fact remains that the populace has at large taken this as a sacrifice for the greater good and a large majority has supported this move wholeheartedly in spite of the hardships faced. A major reason for the poor people supporting this move is the feeling of schadenfreude that they get as they for the first time see the rich industrialists running around to save their money.

This brings us to another problem in the Indian economy. The fact that a poor person can experience joy due to the suffering of the rich in spite of the fact that he himself must bear the pain for no fault of his speaks volume about the hatred and dislike of money. If India wants to project itself as a vibrant and open place of business, it must take note of the socialist behaviors of its masses. If the rural poor abhor their richer counterparts so much, one wonders whether we can really industrialize ourselves. What this schadenfreude shows us is that the rural and poor India despises the ugliness of a richer lifestyle and this has proven to be the primary impediment to our growth in recent times. We must shed this leftist idealism and root out populism if we are to realize the dreams of the aspirational India.

Several people have blamed the government for ineffective planning and faulty execution. For this move to have any significant impact, the element of surprise was of foremost importance. If anyone got wind of such a move, it would crash before taking off. Not to mention the government would be unable to postpone it as the common man would have already got an advance warning. By recalibrating ATMs in advance or by bringing about a sudden spurt in printing of new notes, the government would have risked rumors breaking out.

Another criticism is that by bringing in the Rs. 2000 note before the Rs. 500 note, the government made a massive error since no change could be found for the higher denomination note. Yet if you think about it, by printing in advance a radically different 500 rupee note when another note of the same denomination was in circulation, the government would risk rumor mongering. The same cannot happen with a brand new 2000 rupee note. Also, it takes the same time and effort to print a single note, whatever denomination it may be. By introducing a note of higher denomination first, the government can bring liquidity in the market faster as it can print 4 times the value in the same amount of time by printing a 2000 rupee note. So instead of having no money due to ATMs running dry people face only a little hardship because they cannot find change. At least they have valid and legal tender money. As far as the move to introduce a new 2000 rupee note is concerned, even I have my reservations. Although economically it makes sense as the cost of the note will be several times lower than its face value.

Finally to round it out with the medium and long term benefits. Real estate prices are sure to see a drop due to reduced liquidity leading to preference for banking transactions. The economy will definitely see a drop in inflation as people run out of hard cash to make purchases. It promotes and inculcates a habit of engaging in digital transactions for as many people as possible. It also ends up as a valid successor to the Jan Dhan Yojana so if you did not open a bank account voluntarily, the government is forcing you to open one now. Also the money that doesn’t come back to the banking channel effectively reduces the liability of RBI, although I shall not go into the technicalities of it as it is still vague as to whether this can be transferred as dividend to the government or not. Terror funding has definitely taken a hit and the menace of fake currency has been halted.

In hindsight, one must say that this move must have been planned long back. The government started with promoting bank accounts for all, Aadhar cards for all and mobile transactions. The JAM trinity was a precursor to this move and one cannot ignore, that if you had been a part of this, you would not have suffered right now.