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.