Another week

Was away in Bangalore-Mumbai-Chennai for the working week. Did not have time to blog on several important matters.

(1) RBI held its policy meeting and the repo rate was not cut. Instead, the reverse repo rate was increased. That actually amounts to tighter monetary policy. Consistent with one fact: higher liquidity in the system. Reflected in stock markets. Inconsistent with negative credit growth to industry. But, is that a demand problem? If so, lower rates may not help.  There are other aspects of the policy meeting annoucement including Prompt Corrective Action that need to be studied. No time yet. Must do. Two commentaries with two different views on the policy here and here.

(2) India’s Parliament passed the GST bills. A rare act of bipartisanship. Quite what it means for the country is another matter – short-run and long-run. No one knows. FM has said it is unlikely to be inflationary. Global evidence is to the contrary. These occasions are used by sellers to jack up prices. Kapil Sibal argues that 40% of the country is not covered by GST and hence it cannot be one tax for one nation. Not yet.

Praveen Chakravarty and Palanivel Thiagarajan have a crisply argued piece in MINT on the divergence between States and the appropriateness of a single tax that robs States of their fiscal autonomy, in this context. The idea, I presume, is that states that are poor should have more options to raise fiscal resources to accelerate their development. Correct, in theory. But, if GST were to raise national growth rates, transactions and higher revenues for State than if they had their own sales tax, is there anything to really complain? Only the future will tell if States would really lose out or not.

They can rationalise stamp duties on real estate transactions (are they also subsumed by GST?) and make more revenues. They can rethink their entire subsidies on electricity and also think of taxing agricultural income. They can do asset sales including that of land.

If one looked at criticisms of the European Monetary Union, it was argued that the failure to back up monetary union with fiscal union was one reason to doubt the resilience of the EMU. India has done that now. It has a monetary and fiscal union now, withGST. Well, almost.

Second, along with the monetary and fiscal union, there was supposedly a need for automatic fiscal stabilisers. America has it. It is also a monetary union. But, its States have still retained the power to tax. It does not have GST.

European Monetary Union has unequal regions. South vs. North. But, not quite as bad as India’s 3-3-3 as the authors argue. Does it call for different exchange rate, fiscal and other policies in India? In that sense, I would venture to ask: ‘why only single out GST?’ The very idea of a optimal national area (not just optimal currency area or fiscal area) or a optimal political area – in other words, the Indian Union as it stands – is questionable.

(3) Indian courts waded into all areas – from the sale of automobiles to alcohol to farm loan waivers to taking over the task of remving juliflora in the State of Tamil Nadu. A liquor outlet in Kerala tried to overcome the 500-metre ban by creating a serpentine path to the outlet that covers 500 meters. The Town Planning Agency is not amused. Kritarchy induced anarchy in the country. More later.

(4) On the international front, President Trump’s inexplicable bombing in Syria. Quite how the ‘change of heart’ happened is hard to understand. Indicates a weakness that is bound to be exploited by the other side. Exactly similar to how yielding to pressure and blackmail only entrenches tactics and not end it. According to Rex Tillerson, there is widespread support for the action among America’s traditional allies. Well, that is actually a problem. Tulsi Gabbard deserves praise for her criticism.

(5) Terrorist attack in Stockholm.

(6) There was the bomb attack in St. Petersburg metro train and, over the weekend, a deadlier one at the Egyptian Coptick Church.

(7) WHO marked the World Health Day with dire warnings on depression as a major disease that looms ahead.

(8)  Then, there was the PEW Survey on Religious composition of world population:

Over the next forty five years, Islam will grow faster than any other major world religion. By 2060, Christians and Muslims will make up nearly equal shares of the world’s population. With wide gulf between births and deaths, Muslims saw more growth than any other religious group due to the natural population increase between 2010-2015. Among Muslims, there were no European countries where births exceeded deaths, 2010-2015. [Link]

I am sure there is more important news that I have left out: U.S. employment data for March and the meeting between President Xi and Trump. More on them later.

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