Compensation to States and Borrower of the Last resort!

 India's FM is an unenviable position. Given the penchant for two steps forward and one step backward in all economic decisions, FM is in the eye of the storm unendingly ever since the pandemic struck India. In fact, even before that, India's GDP was sliding YOY from 2016-17 onwards. It hit a high of 8.26% in 16-17 and hit the lowest so far in Fiscal 19-20 at 4.2%.

GST collections have also ebbed along with the GDP since even Nominal GDP has grown only by 7.2% in Fy 19-20.It was growing at 11.76% in Fiscal 16-17. So, this skidding of the nominal growth rate coupled with a reduction in GST rates in 2018 led to a shortfall in GST collections even though the tax base widened. The good thing about the One Nation, One tax has been the acceptance of this Taxation in lieu of VAT at the individual state level and Excise duty at the Central level. The consensus behind GST has been bought by Arun Jaitley with the commitment for providing Central funds at the growth rate of 14% YOY to the individual States, by levying Compensatory cess on luxury and sin goods. However, the Central Govt is caught on the wrong foot this year due to the pandemic. The tax collections are abysmally low and this has forced the Central Govt. to consider reneging on its promise of providing compensatory funds to the states.

In the recent 41st GST Council meeting, FM has been compelled to use the insurance phrase of Act of God i.e force majeure(or Hand of China?!), to describe the extraordinary situation due to the Covid pandemic. Due to this compulsion, the Central Govt has presented two options to the States to consider and give their replies in a week's time. Under Option 1 States may borrow Rs.97K cr at a special interest rate and the principal and the interest will be later on paid out of Compensatory cess on Cars, Soft drinks, tobacco, pan masala, and coal. Under Option 2 States can borrow up to Rs.2.35lac cr and States will have to pay interest at the market rates.Only the principal will be paid out of Compensatory Cess later and the interest will have to be provided in the States' Budgets. In this GOI has made a fine distinction between GST implementation loss and Covid induced tax revenue loss which is also hair-splitting and needlessly academic, if not contentious.

Now the overall emerging scenario is one of confrontation between the Centre and the States. All economists are now supporting the States saying that since it is the commitment of the Central Govt. it has to find the resources for funding this GST collection shortfall. Of course, they are of the view that the Central Govt can source this fund at a much cheaper cost than what the States could bargain for.This is an important point. However Finance Secretary has gone on record saying that if the Centre resorts to this borrowings, overall bond yields may go northwards, which will raise the cost of borrowings for both the Public sector and Private Sector. As a consequence, the sovereign rating of the country may be adversely impacted which will be detrimental to the interests of all sectors of the economy. But the moot point is this can happen even if States borrow for this purpose.

In the meantime some of the opposition ruled states are considering approaching SC for a direction to the Central Govt, saying that the Centre is trying to hide behind AG's legal opinions, shirking its responsibility in honoring the revenue commitment in letter and spirit. But such an outcome may not augur well for federal relationships and for the future of cooperative federalism which is touted as the big success point behind GST introduction.

However, in all this surcharged situation over who should shoulder the borrowing burden, the missing point is how well or badly States are containing their deficits in the last few years despite being given higher level of funds without much of efforts from their side. Any additional funds given without caveats are being frittered away by them in giving freebies, free EB and in unplanned revenue expenditure. So who is going to discipline them and rein in their penchant for spending without answering for outcomes? Even in May 20, when Centre gave permission for Additional borrowings through the WMA window, many states incl. Tamilnadu objected to the thinnest of the sticks like DBT transfer of EB subsidy to BPL families, that came with the carrot. States only want the carrot as their right without any strings being attached.

That said, Central Govt. must seize this opportunity to bring to light the importance of fiscal discipline at the State level by finally agreeing to resort to the borrowings on their behalf.

If you consider the Center and the State as the right and the left hands of the same person, sometimes when your right hand is full of weight to be lifted, the left hand also should chip in to bear the weight in order to balance it. Left cannot accuse the right of transferring some of the weight to it!!

Lockdowns ,Unlocks and White elephants!

 

We have had four lockdowns and unlocks across the country.To start with it was Complete lockdown, which struck like a bolt from the blue starting from March 24th till May 31st 2020. Many prominent opposition leaders severely criticized the Govt for this lockdown accusing Modi of dictatorship tendency throwing the hungry, poverty-stricken, migrants on the streets and pavements uncared for. The second lockdown little relaxed was in June as experimentation and once the pandemic started spreading wildly, Govt. was again back to stricter lockdowns. But by the end of june, Central Govt realized that the question of livelihood was becoming important and advised staggered unlocks.

But many states ruled by opposition leaders taking a holier than Centre attitude continued with strict lockdowns introducing epasses even for intrastate movements, imposing restrictions like total lockdowns during weekends making life difficult for the common man. There was a tough competition between states as to who leads in making life miserable for the man on the street.

Now the whole world is praising Modi for his foresight in clamping down a total lockdown inorder to control the spread of the pandemic. Opposition leaders have grudgingly acknowledging this, have now started saying that because of lockdown Indian economy is in ruins.

India had to face many unwanted human tragedies in between due to industrial accidents in Vizag, Neyveli,etc.fire accidents, air accident in Kochi, and also serious border clashes with China apart from terrorist incursions in J&K from Pak.

In the meantime, Central Govt unveiled Atmanirbhar initiatives, Agri reforms, and announced Rs.21 lac crore package of measures to revive the economy.

In the melee that followed, India is still left with some white elephants like Air India which are a drain on the exchequer.Air India should have been corporatized, separating the ownership and the management at least five years back. Had Central Govt taken this bold step at that time we would have found real value of the Air India as a Corporate entity. We understand that when Jitendra Bhargava wrote a book "Descent of Air India", it kicked off a political storm with Praful Patel filing a defamation case in  the court to get a ban on the book. But the author self-released it  in 2016 and is available on Amazon kindle as an e-book.Praful Patel withdrew his defamation suit in 2017.

Now with Air India only its Intangible asset of Bilateral Landing Rights is the most valuable of all assets.This has been brought out by Kumar V.Pratap former Joint Secy,GOI, in his recent article in FE wherein he has said that Planning Commission in 2011,refused permission to publish his earlier article on Privatisation of Air India(see the link) .Now the quotes for the sale of Air India have been invited through a global tendering process. The last date for submission of bids have also been so far postponed 4 times and now the last date stands at 31st Oct.When Travel & tourism and more particularly the aviation sector around the world has been severely crippled by the pandemic , finding a suitable bidder would be highly improbable. But Govt is left with Hobson's choice now.It has to bide its time for a suitor when the airline continues to lose its value and burn tax payers' money.

BPCL sale tendering process also is in the limbo due to the prevailing uncertainty induced by the pandemic. Other PSU divestments are also moving at snail's pace due to lockdowns.

To sum up, the Govt is unable to unlock the value for its assets!!

Tax, STT and Windfall tax.

The only thing certain about Tax is, it is always taxing. 

India abolished LTCG(Long Term Capital Gains) tax some years back while STT(Securities Transaction Tax) was introduced. After few years Arun Jaitley,the then FM at the Central Govt, thought it fit to reintroduce LTCG Tax from Fy 18-19, with an exemption if STT had been paid on the transaction. Now many Economists have recommended for abolition of LTCG tax showing the distortion it brings in transactions involving Digital Gold, unlisted shares and the black money generation it encourages in all and sundry especially in Real estate transactions.

The arguments against LTCG Tax are strong and valid. The vagueness it brings in matters of valuation brings lot of confusion and uncertainty giving the incentive to hide part of the consideration received. What demo wanted to flush out, LTCG Tax has encouraged inadvertently. It has sent wrong signals across the economy.

What is the remedy then. One simple alternative is to bring Transaction Tax similar to STT as Gold Transaction Tax and Real Estate Transaction Tax.

Recently Mohandas Pai, on LTCG Tax wrote a column in FE correctly stating that LTCG Tax is anathema to simpler taxation philosophy since it creates a mindset of evasion among tax payers.He has called for abolition of LTCG tax forthwith by rightly pointing out few perverse taxing rates especially with ref. to LTCG tax rates on the sale of unlisted shares.

Once LTCG Tax is abolished  Central Govt may want another avenue for Tax revenue and for that I would recommend Gold Transaction Tax and Real Estate Transaction Tax on the same lines that of STT. These Taxes will be much simpler to comprehend and easier to comply with. Even administering it by IT dept will be easier.

Now there is a clamor for a Windfall tax from the stock exchange transactions, as people who dabble in Stock exchanges are generally from well off sections of the society. When the whole nation is battling pandemic induced economic woes, it is quite natural to expect the group of well-heeled rich to contribute something extra by way of tax to the country's cause in fighting this economic downturn. But this windfall tax must be a one-time tax or it can be a temporary increase in STT for 2/3 years.

My preference would be for a temporary increase in STT for 2/3 years.

Open society and its friends!

 Karl Popper wrote in his book "Open society and its enemies"  that Paradox of Tolerance leads to more intolerance. He explained that in order to maintain a tolerant society,the society itself must be intolerant of the intolerant. He openly borrows his idea from Plato's concept of Benevolent despotism or benevolent dictatorship.

Indians have understood this contradiction in governance and according to the best of statecrafts defined by them State Governance has four ways of taking action : Sama,Dhana , Bheda and Dhanda. When it should actively encourage dharmic ways of living, it should seek out and identify those who are bent upon disturbing this peaceful coexistence. It may be its own citizens or enemies from outside. For dealing with them it should employ the above four ways and it can move from one to another subtly, discreetly or sometimes directly. Dhanda is always the last resort and even for criminal acts and for offenders, punishment is a must. This is intolerance of the intolerant. Punishments should be given after speedy and fair inquiry and justice must be seen to be delivered without delay. This will have a deterrent effect.

However the contrast is to see who are Friends of Open society. Friends are Those who forge consensus, those who encourage cohesion, those who believe in cooperation, those who trust collaboration, those who practice transparent communication, and those who want syncretic, synergistic community development.

The tolerance towards genuine failures, mistakes in trying to invent, missteps in search of progress will go a long way in supporting open societies that are productive and supportive in the long run. When the societies are young in age such openness provides the youth power to blossom out full harnessing its potential.

But, many times, these friends of open society work in silence and with lot of patience. But earnestness, perseverance and persistence are their hallmarks. Friends of Open society will always build checks and balances to prevent even unintended misuse of power, influence, nepotism etc.

When Voltaire declared Liberty as the fulcrum of modern human society, he meant , civil liberties, freedom of expression and freedom of religion. He is widely believed to have written "I disapprove of what you say, but I will defend to the death your right to say it." Those who subscribe to his views are all Friends of Open society.Such open societies will bring forth positive changes in human dynamics and nurture inventions, innovations in all spheres of life from poetry ,arts to physics,biology.All this leads to prosperity in society and the virtuous cycle is set in motion.

It is our bounden duty to identify and safeguard these Friends of Society who are pillars of Tolerance and not to discredit them wantonly by imputing intolerance.

Inflation, Monetary policy and India

 The minutes of the recent meeting of Monetary Policy Committee  of RBi which were released this week, contain some interesting mentions. One of the news columns said that RBI minutes mention 'uncertainty' 12 times, 'growth' 43 times and 'inflation' 147 times It has expressed concern over inflation and it seems to be valid as CPI has remained above 6% which is more than the tolerance limit of RBI. Alongside, India is experiencing severe GDP growth pangs as its IIP has remained in the negative territory in the first quarter and in July also. Services sector is in a deeper mess except of course ITES, SAAS etc. which have been affected to a lesser extent. It looks like only Agri sector has not been impacted adversely so far ,as the progress of monsoon has been satisfactory and the spatial dispersion also fairly good.

The RBI Deputy Governor Mr.Michael Patra had said : "If inflation persists above the upper tolerance band for one more quarter, monetary policy will be constrained by the mandate to undertake remedial action, including an immediate and more than a proportionate response to head off the build-up of inflation pressures and prevent it from getting generalized." So, to sum it up ,we have classic case of "stagflation"- a combo of GDP slowdown and inflation.!

CPI in India has a higher weightage for food and fuel indices and these two are certainly not amenable to monetary policy measures. In India fuel price is driven more by Govt . policy measures and it is feeding into inflation with its rippling effects on the rest of the economy widespread.When pandemic is restricting economic activities profiteering becomes rampant in vegetable and food prices. When the supply chain and free movement of people and commodities happen, the inflation tendencies will come down. Cost push inflation of food prices will not listen to monetary policy signals in the short term in Indian conditions. As India is driven more by cash , there is a quite a lag in food inflation responding to monetary policy measures, if at all it is significant. May be hoarding and black marketing of these vegetables,cereals ,staples etc. may come down a little bit.However Govt. initiatives through Essential commodities and anti-hoarding sticks used by Govt. through other means incl. emergency imports may be more effective in the short term to bring down food prices.

When the economy is awash with liquidity, the prices in general have tendencies to go north .More so when the supply constraints remain elevated due to lockdowns,e-passes and uncertainties compounded by fear for life and livelihood affecting the income. In these circumstances. RBI should look at high CPI as extraordinary during the pandemic period and should start looking at Core inflation now and then revert back to CPI only after the pandemic is seen plateauing.In the meantime, RBI may seek a temporary amendment for its inflation targeting, switching to Core inflation in times of extraordinary circumstances like a pandemic,global financial crises etc. and then have a glide path back to CPI inflation targeting after the crest of the crises is over.

Plato's Cave theory and Advaita!

 Plato in his magnum opus Republic has given an Allegory of the Cave which is widely called Cave Theory to emphasise on the lack of education on our nature which is similar to the prisoners inside the cave .Prisoners inside the cave see only images of reflection which are only shadows of the reality in the dim light.Plato being the disciple of Socrates has written this as a dialogue between his brother and Socrates. The prisoners free themselves from the bonded chains in the caves and come out and see that what they have experienced is not reality but reality outside the cave exists. This allegory shows that the human senses when chained to the cave do not allow humans to think beyond the cave images. In this allegory Plato keeps mathematics, geometry and deductive logic at the third and highest level of education.

There is a similarity of this to Indian philosophy of Advaita, in which in simple terms it is said that what we experience is not the reality and it is more like an illusion what we dream in our sleep. Adi sankara when explaining this illusory phenomenon says that this happens due to Avidya or lack of education which is awareness. When we realise our true self we become one with our Creator and realise there is only one Absolute and there is no second- "A dvaita"- only" Brahmam Sathya" and this "Jagat(Earth) Mythya(myth/illusion)".

So in a way both the concepts of philosophy talk about Education or lack of it and its effect, impact on human understanding. Human minds are conditioned by experiences, perceptions and memory impressions and their interplay, without comprehension of the reality or the true nature of human existence.

Bhagawan Krishna in his Gita also emphasizes on this Avidya (Chapter 4)and suggests ways to come out of it(chapter 5). The best and the easiest way is to surrender our ego to Bhagwan and continue with our duty selflessly without any attachment to the fruits of our actions.

TReDS AND GST PORTAL

GST portal has come a long way from a fledgling,fumbling and faltering days to its better days.However it has go a long way to evolve into a mature and more user-friendly phase. Now Central Govt is introducing e Invoicing with unique Invoice Reference Number (IRN) for traceability and matching concept introduction. This IRN will be given by Govt and this is to identify whether it is a valid e Invoice .

This numbering system will be similar to cheque MICR no. for the purpose of verifying the genuineness and also for the use in matching it for clearing mechanism. This IRN will also serve similar purposes.More than bigger companies this system will help MSMEs in the longer run.

For MSME bill discounting some of the banks like Axis Bank have introduced a digital platform called TREds so that MSMEs can access cheaper bank finance against their supply invoices. Ministry of Corporate Affairs have also made it mandatory for all Corporates with a turnover of Rs.500 cr and above to register under this for all their MSME suppliers to take advantage of this bill financing platform which will help them in working capital.My suggestion is that TREdS ,which is a standalone platform of the Axis bank, may be linked and integrated with the GST portal so that ,MSMEs need not have to again look for another software to do E invoicing and generating Eway bill through GST portal. If this linking is done ,as and when Eway bill/E invoicing is done in GST portal/software, it is enough to take it to TREds platform and any duplication and time loss can be totally avoided. This will also be a great marketing tool for quicker Adoption of TREds as mandated by MCA.RBI and MCA, MOF and MSME ministries will have to work together to do this immediately which will be a great boon for MSMEs making it easy for them to do business.

Today there is a heartening news that Cabinet  has approved the budget decision to amend Factor Regulation Act 2011 to allow non-banking finance companies(NBFCs) to extend invoice financing to the MSMEs through TReDS, an electronic platform  for facilitating discounting of trade receivables. 

Now Govt should also takeup this digital linking of TReDS and GST portal softwares for MSMEs to really usher in ease of doing business and paying GST .This will also indirectly help Central Govt garnering higher GST revenues through widening of tax base

US, India and Kamala!

 Independence day in India is always a grand event as it happens on August 15th of the year. A year has 365 days and if you have a cut off at Aug 15th ,it is 227 days into the year starting from Jan 1st..This is approx 1.66:1 of the year. That is the Golden Ratio which is supposed to be a mystic proportion of anything including the picture of Mona Lisa ,and that is considered to have made it magically beautiful.

That apart, Indian Independence day this year was preceded by the announcement of Kamala Harris as the running mate of the US democratic presidential candidate Biden.

Kamala Harris' mother was of Indian origin from Chennai. She carries the name Kamala which is a traditional Sanskrit name for Lotus flower. Indian ruling party BJP has Lotus symbol as its primary identity. The moot point is , the common least denominator between the ruling party of india and US politician Kamala ,is the Lotus . In many ways, Lotus i.e Kamal is very dear to india and it is the official flower of the country also.

From time immemorial in all the Indian Sanskrit scriptures and literature, Lotus has come to be identified with the cultural and religious sanctity.It holds a premier position in Hindu/Buddhist/Jain/Sikh religions as representative of all that is blemishless and purity. Many of the Hindu,incl. Buddhist etc. Gods or Goddesses are seen seated on the Lotus flower as it symbolizes purity in full bloom. Offering Lotus to Hindu Gods and Goddesses is believed to usher in , auspiciousness and prosperity into the lives of devotees. Even our heart is called Hridaya kamala in our literature. In higher philosophy,'Ka' is referred to as Brahman(paramatma), 'Ma' is referred to as Human(jeevatma), and 'La' is referred to as Acharya or Sri, who tirelessly work in uniting the Jeevatma with the Paramatma.

But it looks like the connection between Kamala Harris and India seems to end with Kamala and not beyond that, since the general social and political outlook of BJP and Kamal harris are totally divergent.They do not share a common platform of understanding of the fabric of Indian society, which is inherently plural and democratic. She has shared her opinion of Indian ruling class , relationships with Pak, Kashmir problems etc. seen through the prism of US and not through the prism of India. Pak and Bangladesh are offsprings of India and it is not sibling rivalry that bogs down India-Pak relationships as viewed by US generally. 

To that extent , I humbly believe, Kamala Harris will have to borrow an Indian prism to look at Indian subcontinent issues, since almost 7 countries(India, Pak, Bangladesh, Afghan,Nepal,Bhutan and SriLanka of South Asia were all part of Bharat i.e India ,till the advent of the 20th century.The cultural and religious relationships and influence of India extend beyond this to China, especially Tibet and all the South east Asian countries incl. Japan, Indonesia, Thailand, Malaysia etc.

Finally, she should not forget that India is a 70year old thriving democracy and that too the largest democracy in the world sharing many similarities with US, which Columbus thought to be India!!

Import Trade restrictions and Make in India-Atmanirbhar!

 Import Trade wall or barriers are not new to India. The country had very steep walls in terms of Tariffs, licensing ,quotas etc. all in the name of safeguarding the domestic industry. When the country gained independence, many of the industries were either nascent or anemic and in order to restore their health, Central Govt had no option but to erect some import restrictions so that local industries in the economy are nurtured. This grooming of domestic industry with level playing field took a new turn in the late 1960s and 1970s with widespread nationalisation of private enterprises, ushering in an era of erratic socialism all in the name of protecting the citizens from private profiteering.

This concept led to erecting walls within the country between the commanding heights of Govt. undertakings and the Private enterprises. The private sector was neglected and was left to fend for itself and scaling up an enterprise became a uphill challenge for private sector. Inorder to protect them from imports from manufacturing bases around the world with deep pockets several safeguard duties and tariff walls were made stiff .

But all this had a negative side effects as the local industry became flabby, lethargic,self seeking, ignoring Tech.upgradation, without stiff market competition on Quality , Cost and Delivery.All this was done with the good intention of making India self restraint through import substitution. But the unintended consequences of this led to high cost of manufacuring and poor quality product.This situation was reversed when GOI started reducing tariffs and import restrictions through some pragmatic steps inviting foreign direct investments in the early 1990s.

By the time we missed the bus and Chinese who started this in 1980s had a clear headstart over us. Our two steps forward and one step backward strategy in all these matters of import policy were designed by bureaucrats with the hidden intent of rent seeking politicians, businessmen and babus behind it.

Only after the advent of Japanese, US ,German and South korean companies started their manufacturing bases in India , Quality, Cost and Delivery gained attention and became the guiding lodetones of enterprises keeping them lean and mean. This tough market competition has helped India in achieving the pinnacle of success in Auto sector especially in becoming World's top two wheeler manufacturing base.

That said , now there is lot of discussion on Govt's announcement of Trade tariffs for imports from China and licesing and ban on import of defence equipments,  high end TVs etc. The heated debate of back to the moribund policy of import restrictions in the name of Make in India- Atmanirbhar Bharat is indeed a good one.  

Does this mean back to the future?

But there can be an argument in terms of supporting this policy of  import restrictions.

When fledgling industry is sought to be setup like in high end tech products, these specific products may require some sort of support or sops for a initial few years. When foreign direct investment is invited for huge sunrise industries, such import walls will be helpful but all but temporarily. If there is a sunset clause introduced for all these tariff or sops or subsidies, it should be welcome. Govt. should make it a point to insert a sunset clause for all these import walls except in very few strategic sectors which may not exceed five on the whole.Govt should not give an impression that it is interested in augmenting its tax revenue through these high import duties.

India has given a great fillip to Make in India- Atmanirbhar in some of the industries like Auto, Smartphones etc which has generated huge employment opportunities in the country. Inorder to give a temporary boost to this policy, Govt has done the right thing by introducing few Tariff walls in order to promote the above stated policy  and these Tariff barriers should neither be seen as a way of revenue rising, nor as a permanent fixture to protect the domestic industry.

Covid, Cricket and Character!

 Cricket has weathered many a winter and smothered many a vagary as a gentleman's game. Cricket was played during Spanish flu times also and UK's Wisden has not recorded any disruption in the progress of the cricket season in 1918 and 1919. But Cricket was severely restricted during World war 1 when all the major cricket playing nations were involved in the war.Cricket was also played less during World War II since England was involved in the war in full measure. But during all these periods of distress, Cricket was played in India with the least disruptions.

In fact, Wisden which has recorded death of English cricketers during World War 1 and 2 in all cricket playing nations , has not even mentioned one indian cricketer dying during Spanish flu days.This has to be seen in the light of total death toll of 17 million who died in india during Spanish flu years.

So even in 1918 and during World wars everybody around the world believed that India could somehow manage and survive humanitarian crises.

But this Covid 19 apart from being a dangerous pandemic , has also become a statistician's delight. of course not as enjoyable as cricket statistics. But still there is a everyday scorecard and the top states are vying with each other to remain on top with highest Covid 19 nos. Tracking, Tracing , Testing and Treating has given huge opportunities for multifold statistics and different tools to be employed across the country and the globe.

there are 3 day moving average, 5 day average, 7 day moving averages of tested, positive, discharged, active, deaths etc.etc. and colorful graphs of percentage growths of each one of them which compete with each other for eyeball grabs.

All the news channels have a separate ticker like in a Cricket match and hour to hour scores update pushes up your BP and make you a Covid patient , if not one already. Many people have stopped seeing news reporting in any channel and if they see one by mistake wait with bated breath,holding their chests with clenched fists as if hearing an India scorecard in a World cup cricket match.

Of course, the statisticians, epidemiologists, virologists give dire prediction every 15 days constantly reminding us that Covid nos. will surge and there will be a deluge in the next two months and this has been going on for the last 4 months.They have been predicting wildly exaggerated nos. and some statisticians can track all these predicted nos. of various agencies and give out the comparisons with the actuals. Such comparisons can provide another play with graphs, colours etc.

In all this round-robin play what is missing is character.Only few have been able to hold their forte not to rock the boat and rattle the gullible.Like lenders and banks looking for people with character to lend ,this pandemic has given a clarion call to those with character to come to the rescue. You can find people with capital, capacity to repay but finding a person with Character ,which is willingness to repay, is difficult. Character being  a rare commodity in these days of rising NPAs,  Bankers will nod their heads in agreement with me. In Cricket also we have seen people like Rahul Dravid, the Wall, VVS Lakshman, who have displayed great character to steady the ship, in crisis situations. Cricket captains like Mike Brearley of England, Pataudi and Dhoni of india, have shown stoic demeanour in the face of dire situations while leading their Teams. But a World cup winning cricket captain Imran Khan is the PM of Pakistan during this pandemic.But like in his heydays he is spitting venom at his rivals even outside the cricket arena. Is Cricket not making PM ,a gentleman? 

However,  I am not losing hope since our PM, himself, is a man who displays great Character even if he has not played cricket and is known to have sold & served Tea perhaps even during Tea breaks while others were busy playing Test Cricket!!

Be cautious and there is no need to spread fear and panic about both Covid and Economy! Drink hot Tea and take good rest!

RBI monetary policy and the state of the Indian economy

 RBI's recent Monetary Policy announcement after MPC considered the latest economic factors, CPI etc , came out with no repo rate cut. Primarily because CPI is elevated and at an uncomfortable level as far as RBI is concerned.since the mandated and stated objective of RBI is now inflation control, RBI has decided to hold the rate this time despite the economic slowdown calling for a steep rate cut.RBI also mentioned that this year would see real GDP contraction after more than four decades, but still decided to save the powder for a more rainy day or for a day when the bang will be worth its buck.

India is facing rising prices also esp. food prices, fuel prices and therefore is experiencing a cost push inflation. There is a school of economists who say the inflation is fueled by easy liquidity floating in the economy and the stock exchange boom , gold price rise all indicate to easy money into areas where some quick money can be made.Even RBI is predicting a rise in inflation levels in Q2 but has refrained from an inflation forecast.

Gold price,as Ruchir Sharma in today's TOI blog(link )puts it, rises due to uptick in demand whenever interest rate is lower than the inflation rate. But Gold being a safe haven investment booms when the rest of the economy sees more volatility elsewhere esp. in stable investments. There is a rush of outflow from equity MFs in July but is it going to Debt MFs or to stock market or to gold  is anybody's guess.But there is greater desperation driving up buying Gold rather than preference as an investment.

All this paint a confusing story but with tinges of liquidity bulge which may become an inflation down the road, unless the productive resources are used for assets and jobs creation. But the silverlinings are shallow oil prices, decent monsoon, burgeoning foreign exchange reserves and surplus in current account balance. So, cost push factors in inflation are slightly mitigated in the near to short term.

CII 's recent 111th Business Outlook survey,July 2020, which was released last month revealed that out of three indeces Current situation index, Expectation index, Business confidence index, the Current Situation Index of Q1 of Fy 20-21 is similar to the levels of Q4 of Fy 19-20! Only the Expectations and Business Confidence levels in the economy have deteriorated during Q1 of Fy 20-21 as compared to earlier quarter.

Dr.Manmohan Singh in his BBC interview has also clearly said that this human crisis created by the pandemic calls for greater spending and greater borrowings by the GOI, even upto another 10% of GDP for tackling health, military and economic challenges of the country. His wise words would be worthy of listening now.(link)

But this borrowing must have a clear exit clause linking it to FRBM Act requirement of glided fiscal deficit path to 3% of GDP eventually in the short to medium term of 3/4 years. Only this can bring back investors into the country. Otherwise Fiscal profligacy is the scourge of the growing economies like India.

There are no simple answers but quick actions,as outlined by PM in his speech on the occasion of  Ram janmasthan Temple laying foundation,have to be taken by the Govt. Quoting from Kamba Ramayana he said "காலம் தாழ ஈண்டு இனும் இருத்தி போலாம்" என்றான் இராமன்" which essentially means we should not procrastinate taking actions to rectify the situation. A well focused fiscal stimulus, vaccine or no vaccine, is an urgent imperative.

Minimalism-இருந்தும் ,இல்லாமல் இரு!

 Minimalism is an old concept but is gaining ground these days when Covid 19 pandemic is trying to devour the entire world.

Minimalism is all about living with less. This is not a fad but a way of life of renunciation and deep withdrawal from worldly pleasures, which has a profound effect on the psychology of humans.

In India, many of our Saints and philosophers have talked about leading life of penance ,sacrifice and total detachment. Even wealthy persons of yester years led a life like that of a Trustees of their wealth. Gandhiji also said this in his seven sins of life:

"Wealth without work; Pleasure without Conscience;Science without humanity;Knowledge without character; Politics without principle; Commerce without Morality; Worship without sacrifice"

It is said that Gandhiji also laid lot of stress on wealthy businessmen and persons to remember that they are Trustees not owners of their wealth which provide them an opportunity to serve the people at large and for social welfare.

Minimalist philosophy emphasizes on getting rid of excess stuff and living life with less and less of worldly possessions.

This is similar to the concept of leading a life like that of water on Lotus leaf. It is a status of living attached but detached explained in Bhagavad Gita. Nishkamya karma yoga in Gita is a path on the same lines without any attachment to the results. If you stretch it , this will show that the emphasis is on being not selfish but living for the sake of greater good of the society.

In Tamilnadu, siddhars gave a concept of "இருந்தும் இல்லாமல் இரு" which is nothing but minimalism of modern era. Siddhars extended this concept even to knowing the meaning of our existence. According to them God Dhakshinamurthy symbolises total silence and  inward withdrawal of soul to know thyself. Arunagirinathar was delighted at being advised by the Lord "to remain in silence".Even getting rid of words or speech is the best way to realise the truth about oneself.

This is Minimalism at its maximum!

Orwell and Covid vaccine

  "All animal are equal, but some animals are more equal than others," wrote George Orwell in his allegorical novel Animal Farm. the stody in short conveys the meaning that the absolute power corrupts absolutely.

His novel 1984 which is a classic dystopian novel, also wrote about Thought Police to persecute individuality and independent thinking . This novel and Aldous Huxley's "Brave New World" rank as two of the best dystopian novels of twentieth century. Huxley's novel describes a world where people are born and raised  through engineered artificial wombs and childhood indoctrination into predetermined classes or castes based on intelligence and labour.

In all these novels, a world covered by intelligence which gives it an order and discipline predetermined by its rulers, is a dire prediction.

Coming to Covid 19 driven world of today, our ways and methods are directed by rulers assisted by doctors, epidemiologists and virologists , and we are not at liberty to do and act on our own. The overarching societal welfare notion constrains individual liberty and movements. Since it is viewed as a temporary measure many have been living with it.

But once Vaccine is made available, this may give way to more individual liberties and rights.

However there is a lingering question: "who will get Vaccine first".

Pl. read the opening sentence now again. Some people are considered more equal than others and they are the powers that be and those close to them.

But this notion is against the principles of natural justice and would not hold waters in a democratic society in a free world. The Vaccine adminstration should have a free protocol without any strings of power, money, position pulling it. This is very very important for the society or any country to think they are still democratic and free.Only then future is secure and people can look forward to prosperity guided by a truly compassionate Govts.

Are we still democratic society?

Indian Acts, amendments and russian roulette!

 Whenever any change in the IT Act is contemplated it should be put through only one filter which is "simplification" of the tax. Revenue considerations, whether an increase or decrease, not to enter as a filter for any piecemeal or Adhoc changes during the course of the year.  Simplification, reduction of tax, widening of tax base may be used as multiple filters for once a year changes in the Budget. Many times an amendment is done in the name of maximizing tax revenues and plugging loopholes. This is a pure travesty of truth. Instead, Govt should move towards simplification and ease of compliance. This obsession with revenue maximization is a colonial hangover.

Very often IRS officers and CBDT also complain about CAG Damocles sword over their heads if they don't plug loopholes. Indirectly such a plethora of amendments and tinkering goads loophole industry to become more innovative.CAs, lawyers enjoy and thrive on this.More the loopholes and more the plugging.More they change,more they remain the same!!!

Probably many are trying to say if simplified ,more taxes thro voluntary compliance can be collected. They also suggest a remedy like new simple Direct Tax Code ( DTC),which is good but may throw more complications ,uncertainty ,unintended consequences into the moribund system if this new tax code is introduced all of a sudden (like that of GST).So at least in the short to medium term, Central govt should work towards only simplification in terms of return filing, assessments, presumptive tax , reducing litigation etc and keep revenue maximization in the back burner.

 One of the important points in this context needs some elaboration.AOs, CIT Appeals have a tendency to overrule a precedent Court judgment by taking a flimsy, perverted, convoluted argument or a trivial or a vexatious finding to make the court ruling inapplicable,just to maximize revenue collections and reach their targets for the year.Then deliberately they will make mistakes in calculations just to boost unpaid tax amount and threaten the assessees subtly showing it as arrears in demand.These are all euphemistically called "high pitched" assessments.!!

Few funny examples of unintended consequences or "Cobra effect" are given below:

1)Under IndAs, Redeemable Preference shares will have to be grouped under Borrowings and not to be included under Share Capital. This is in line with IFRS ,since Redeemable Pref.Shares with a fixed dividend payments have the substance similar to that of a borrowing even though by name they are called Shares.

However under our Cos. Act, 2013, the Redeemable Pref.Shares are continued to be classified as part of paidup Share capital.

This dichotomy, apart from skewing Debt:Equity ratios create other unintended consequences in the declaration of ShareCapital for the appointment of KMPs etc. and for presentation to the Lending institutions, Credit Rating Agencies etc.

An amendment in Cos. Act to align this with IndAs is long pending and would be a welcome step.

2)Similar is the case with depreciation calculation under Cos. Act and Indian Income Tax Act. Depreciation under IT Act can be charged at a higher rate (accelerated rate) allowable under the Act for claiming higher tax rebate whereas Cos. Act & IndAs prescribe lower rates for presenting the Financial Statements for declaration of dividend etc. Due to this anomaly every year Indian companies will have to work out Deferred Tax liability for deferring the tax by availing higher depreciation. Over the period the profits under Tax and IndAs will be smoothened out. This is pure legislative fiction. By aligning the tax rates under both the legislations this fiction can be easily removed. Is our Govt listening to simplification or trying to complicate things in the name of simplification.!!!

If anybody wagers on Russian roulette, most of the time winning it would depend on your luck and stars, and similar is the case of somebody wading through the muddy waters of Indian Income tax Act.

Ram temple and the Indian ethos

Ram temple has been the dream of millions of Indians who are Hindus, Sikhs,Buddhists, Jains and even some Muslims if not Christians,Jews etc. Why I said some Muslims, is because some of them regard and pay respect to Lord Ram as one of their ancestors. I learnt that some Muslim women of Varanasi have been performing "Shri Ram Aarti" for the past 14 years every day and sing Ram dhun.

Maryada Purushottam Ram has a special place in the ethos, culture, literature,traditions and whatnot of this country from Himalayas to Kanyakumari.He is a symbol of love and compassion and is celebrated that way in all Asian countries of Nepal, Sri Lanka, Thailand, Malaysia, Cambodia, Indonesia and Phillipines ,as I know of. Even Thailand's Royal Kings use the name of Ram in their titles.

Ram has been a symbol of Unity and Gandhiji in modern days extensively used Ram for uniting the people of India under the banner of Purna Swaraj for Bharat. Gandhi in his Autobiography says that Ramayana and Harichandra play left indelible marks in shaping his personality defining his principles of Sathya and Ahimsa. All through his struggle for Independence he stressed the need for Ram Rajya and what it symbolises for. In his own words,

"BY RAMARAJYA I do not mean Hindu Raj. I mean by Ramarajya Divine Raj, the Kingdom of God. For me Rama and Rahim are one and the same deity. I acknowledge no other God but the one God of truth and righteousness.

Whether Rama of my imagination ever lived or not on this earth, the ancient ideal of Ramarajya is undoubtedly one of true democracy in which the meanest citizen could be sure of swift justice without an elaborate and costly procedure. Even the dog is described by the poet to have received justice under Ramarajya. (YI, 19-9-1929, p. 305)

By political independence I do not mean an imitation to the British House of commons, or the soviet rule of Russia or the Fascist rule of Italy or the Nazi rule of Germany. They have systems suited to their genius. We must have ours suited to ours. What that can be is more than I can tell. I have described it as Ramarajya i.e., sovereignty of the people based on pure moral authority. (H, 2-1-1937, p. 374)

My Hinduism teaches me to respect all religions. In this lies the secret of Ramarajya. (H, 19-10-1947, p. 378)

If you want to see God in the form of Ramarajya, the first requisite is self-introspection. You have to magnify your own faults a thousand fold and shut your eyes to the faults of your neighbours. That is the only way to real progress. (H, 26-10-1947, p. 387)" (Link)

The above defined the course of Gandhiji's path in his life and in his independence movement mobilising the masses.

So Ram is deeply imbibed in Indian culture and Ayodhya is the holy point from where this has emanated and engrossed the whole country. Like Gandhiji , Lord Ram had covered the length and breadth of this country , of course mostly by foot meandering through the thickly infested forests- Dhandakaranya, Janasthan- and then to Sri Lanka.Like Gandhiji, he stood firm on his beliefs and promises come what may. Like Gandhiji, he led a life of renunciation and penance to keep up his promise.Like Gandhiji, he wanted to shun violence and pardon his opponent for his misdeeds by giving him an opportunity to return Sita back .

Gandhiji truly imbibed all the best moral characteristics Lord Ram stood for and that is why even when he was shot he died uttering "Hey Ram".

Gandhiji said Unto the Last and this inclusive concept started from Ram nam.In Vishnu Sahasranam , Parvati asks how a simpleton who does not know 1000 names of Vishnu will ever worship the Lord and Eswar obliges Her saying that Ram naam is equal to 1000 names of Vishnu .So the last man standing shall worship by chanting Ram naam so that nobody is left behind.

So constructing a Ram temple in Ayodhya in independent India has been the dreams of millions of indians for over 500 years and the foundation stone laying on 5th August has been the culmination of this dream.

VUCA 2.0 and Board evaluation of Strategy.

VUCA 1.0 talked about Volatility, Uncertainty, Complexity and Ambiguity in the countries around the world and how this VUCA gets multiplied over the years with a purposeful push towards chaos.

The laws of thermodynamics are called into play to describe what was chaos yesterday which has moved into the chaos of today and which will move into the chaos of tomorrow, with entropy increase.

But to tackle VUCA 1.0 , I prescribed the following:

 In a VUCA WORLD

    -Volatile environment requires Vision to look beyond the immediate and prioritise

    -Uncertainty  needs calm Understanding of the situation to be purpose driven

     -Complexity  demands Capability of mind to look at locks & keys

     -Ambiguity  calls  for  Agility in the workplace to innovate, grow and excel.

In VUCA 2.0 Bill George in his HBS article gives out a solution model instead of a fearful premise.

 He elaborates that Vision, Understanding, Courage and Adaptability are the main constructs over which the Strategy can be raised.

When it comes to Adaptability, I am reminded of Charles Darwin, who famously said

that  "it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change."

If you want to swim against the tide and come out surviving, you will have to have the adaptability to change according to the demands of the circumstances.

A Board of Directors while looking at the Sustainability Goals of an Organisation will have to keep the above in mind while chalking out the Strategy. Whenever the Board faces a challenge in evaluating the goals vs the actual performance of the Co, they should remember the following as the compass for them to proceed.

“I can’t change the direction of the wind

but

I can adjust my sails to always reach my destination”

-Anonymous Sailor

EIA 2020 draft is good and what should we be careful about?

What do we know about EIA draft 2020? But even before we read it, we want to register our opposition to the draft. Does this attitude not reek of cynicism.

Former UPA minister Mr.jairam Ramesh shot out a letter to Minister for Environment in Central govt,Mr.Prakash Javadekar saying that draft EIA allows post facto approvals going against the principle of assessment before projects are put up.

There are some fundamental flaws in the assumptions behind the accusations against the draft.

1)Under the current EIA everything is hunky dory and the revised draft now is going to spell doom to the environment. For that, they are side by side quoting that LG Polymers gas leak disaster saying that this project has not obtained EIA clearances for the project still. These people, conveniently forgetting that this project has been put up as per current guidelines and not under the draft now presented, quote LG Polymer as an example of a violation of Environment Act. If the project had come up under the current guidelines it shows that the present system is far from perfect and not the draft EIA which is yet to be implemented.

2)The current regime encourages a lot of bureaucratic hurdles and "environment tax" on industry due to discretionary powers wielded by the govt agencies, NGOs and other vested interests. The influential private citizens hold the industry to ransom raising any number of objections and many a time it becomes a political battle using the corporate turf. The victims are corporate and the employed and finally the country.

3)Are we going by unbiased third party audits for EIA compliance before approving any mega projects. Whenever people's opinions are called for, most of the time the opposition parties jump in to settle their petty disputes and for scoring some political brownie points.Even after the matter is heard and resolved by NGT, and PCBs , local people are fed concocted news by urban naxals in the garb of NGOs through carefully planted stories in the gullible media inorder to arouse their passions and to rake up riots against the projects.In all this, the central point of Environment Impact assessment is the casualty. There are impartial National and International agencies who can give unbiased assessment reports and the country should make engaging them for assessment necessary, if not madatory.

4) Are we not unwittingly not believing any Govt agency even if the truth is told- immediately jumping to conclusion that the Corporates have bribed these Govt. agencies to talk in favour of them. We have become totally cynical of this system and we want to throw the baby with the bathwater.

5)Any development can happen only in the existing land.People must understand where they live today as their house and apartments all stand on land which was once thriving agricultural fields. Britishers pushed the development agenda by forcibly taking up the land and today our own Govt acquires these lands by paying up the agreed market price.Why are we then raising our hands against our own development. Is there any gain without pain?

6) People must understand, if they raise objections to any of these acquisitions, then where new roads, railroads etc can be laid?If our grandparents had raised such objections , whether today's existing Indian railways or National highways would have come up? or whether we could have enjoyed criss crossing the country happily riding on these infra facilities?

7) All those who raise these objections are still at liberty to approach the Courts seeking justice. Nothing or nobody is stopping them from reaching to the Courts.Instead if they want to do road roko or rail roko or cause obstruction to others in general, then their actions are anti social and anti national only. Such people are hell bent on scuttling India's development and prosperity and are playing into the hands of India's enemies.

My appeal to the common man is not to fall for the words of those who want to subvert India's growth using sophisticated wordplay and methods, as part of their selfish partisan and hidden agenda at the behest of our enemy nations.