EcoPolitical

For those not as embarrassingly familiar with Star Trek lore as this author, the Corbomite maneuver is a bluff used by Captain Kirk to get out of a sticky situation. In an episode when the Starship Enterprise is faced with a powerful adversary, the captain threats to use a non-existent 'corbomite' device on board his ship to destroy the enemy. The adversary, unable to take the risk that such a device may actually not exist, relents and Kirk and his crew of 428 live to fight another day.  Matters however will have ended very differently (and the series rendered awfully short) had the enemy called Kirk's bluff. This is a bit like what is going on with China and its holdings of US treasuries at the moment. China is one of the largest holders of US debt, along with Japan. The situation (albeit from April 2019) looked a little something like this: Source: The Visual Capitalist There has been some chatter recently (and indeed keeps coming up from time to tim...

Rahguram Rajan (RR) is indeed a well known personality from the field of global economics. The son of a bureaucrat in India, RR went on to study in some of the most elite universities in the world. He came to be associated closely from Indian economic policy-making in 2007 when he worked with Montek Singh Ahluwalia on financial sector reforms. In 2008, he assumed the role of honorary economic advisor, a role he presumably served till his appointment as the Chief Economic Adviser to the Indian Ministry of Finance. In 2013 he took over as the governor of the Indian central Bank, the Reserve Bank of India and remained in the role till 2016 when reportedly his teaching duties in the USA beckoned and he left. While, this description can be read by anyone on RR's wiki page (as I have), the point I endeavor to make here is that RR was closely associated with India's economic policy at the very highest levels from 2007 to 2016, nearly a decade . He also has the distinction of being p...

Summary: Data indicating higher capacity utilization (CU) is misleading. This author believes that higher CU is reflective of lower capacity additions over the past decade than of any meaningful increase in demand. An innovative analysis of inventory data released by the RBI suggests that corporates too do not appear to be in the mood to crank up activity. This author believes that any government stimulus package that focuses on higher government spend, and tweaking of GST rates will be akin to pushing on a string. To make a meaningful difference to economic activity needs a  two pronged solution, a) ease capital constraints at banks, and b) put more disposable income in the hands of the ultimate consumer by slashing direct taxes. About ten days ago, the Reserve Bank of India released the results of its OBICUS survey on capacity utilization, that indicates capacity sweating in 4QFY19 was the highest in the last five years: While this has been seen by some as a sign o...

Head-line CPI in India came out at 3.15% YY, vs. 3.18% YY in the previous month. The rise in the July headline was driven primarily by four sub-indices, housing (4.9% YY), health (8%), meat (9.1%), and education (6.4%) respectively. Fruits (-0.9%), sugar (-2.1%), fuel (-0.4%), saw a decline on an annual basis. The comforting news here remains that Indian inflation has remained well below RBI's median target of 4%, for 12 consecutive months now. Core inflation as conventionally measured (exclusion based) rose marginally to 4.3% YY (from 4.1% YY in June 2019). There is likely to be some consternation regarding this rise, albeit its small quantum, given that the increase comes after a 6 month falling trend in the core number. However, it is this author's contention, and has been for quite sometime now,  that the core measure being used is not optimal. As such, I would defer to my "true core" measure that is calculated by removing the actual volatile items f...

There is an urgent need, especially in India, to take a novel perspective on the nature of taxes. Economic activities of both the public, and private sectors create purchasing power in the economy. However, due to the sovereign powers of the Government, private sector cannot function independently. It is dependent upon the government's ability to provide it with infrastructure, educated workforce, security in the form of an army/ police etc.  For this reason, there is an element of partnership with the government . In other words, when the government says there is an income tax of 40%, it is in effect saying, that our contribution to your profits is 40%. Now while this may be true for a resource intensive industry like a steel or power plant, it is not so for an IP driven business, or for capital appreciation earned by a risk taker in the financial markets. It is morally unjust for the government to see itself as a nearly equal partner in such cases.  Therefore ...

Summary: Low/ -ve yield bonds in the Eurozone, high social spend, and a demographic time-bomb has compelled European Institutional money managers to venture into non traditional (and thus risky) asset classes. As a growth economy, even at subdued levels, India can offer a beacon of hope to this money searching for a return. The government should consider allowing the issuance of international bonds to address the NPL-driven capital constraints of Indian banks that can kick-start the next credit cycle. The current focus of the government on increasing taxes on risk capital, and compensating via own spend is an unsustainable model and patently unsuited to a young, entrepreneurial economy like India. The entire German government bond yield curve dipped into negative territory this week, setting off alarm bells for the global economy.  For those unfamiliar with the yield curve, it is a plotting of yields that an investor might expect for buying bonds of different maturities...