Shame offensive

Neville Maxwell makes no attempt to hide his distaste for India. But, what is amusing is that he does not take into account contextual evidence of China’s behaviour towards other countries in the region, in the last several years.

See this brief from Singapore-based Institute of Southeast Asian Studies on the exclusion of the Thailand Prime Minister from the Belt and Road summit.

This story suggests that the standoff between India and China near the tri-border with Bhutan is more a pressure on India to accept changing realities. That is realistic, compared to the Maxwell story above. But, are the realities really changing?

Frankly, China’s economy is far from healthy. It is brittle and vulnerable. Big time. It is overestimating its strength and underestimating American resilience, in my view.

At the BRICS Forum in Shanghai

Eighteen days – 5 in Chennai, one in Bangalore, one in Delhi, 3 in Madurai, 2 in Munnar, 2 in Coimbatore and 4 in Shanghai. Back in Singapore on 14th July. Difficult to start somewhere. LIFO.

Close your eyes to Chinese signage in Shanghai and walk, it is a European city. Well-manicured lawns, tree-lined streets, cleaned regularly, high rises and international brands. Impressive. Forgot that they drive on the right side of the road and use American English! Last visit was in 2010 . So much for America’s declining power. Pudong airport itself was not particularly impressive for me. Changi is better. Pu-dong and Pu-shi simply refer to the western and eastern shores of the river Huangpu. My Indian friend who has been living there for seven years told me. He said that the local governments in big cities were mostly efficient and that one did not have to enter police stations with trepidation. The city was a sauna. My friend said it was so only in July and otherwise much pleasant. Daybreak occurred early enough but not as in European cities in summer. It was daylight at 5 AM.

On the road, Shanghai drivers stop for red light even during late evenings and in early mornings. But, they do not wait for pedestrians to finish crossing. Shanghai airport has provided enough counters to check passports and also security points to get passengers moving. It has already become a bottleneck in Mumbai airport. The passport control and security checks have long lines and waiting times there. I traveled from Coimbatore to Shanghai via Mumbai and Hong Kong. I had to beg every one in the line to let me move to the front of the queue as, otherwise, I would have missed my Cathay Pacific flight in Mumbai to Hong Kong.

I had gone there to attend the BRICS related round-table organised by the Shanghai Institute of International Studies and a public event organised by the local government of Shanghai with support from the Ministry of Foreign Affairs in Beijing. Two speeches and one panel discussion. Pushed my hosts to think of why America mattered and why China and Asia have committed the same mistakes that are making them predict the decline of the West. Some nodded in private. A newspaper report on my speech omitted those details. Some foreigners – consular officials of South American nations stationed in Shanghai – lauded the speech. May be, they were polite. My hosts were courteous and polite. I was representing the Gateway House in Mumbai. I am a Senior Adjunct Fellow for Geo-economic studies with them.

That I was a Singapore national of Indian origin gave me cover to drive home some unpleasant facts. They did not raise the Doklam standoff with me, except for one. In general, the feeling one got was that they were a bit overconfident now of their standing. No doubts were raised on ‘One Belt-One Road’ (OBOR) by anyone. Brazil was well represented at the round-table. They were feisty. That is all I can say. Good for them.

Did not realise that Google Mail and google could not be accessed. I am not on Twitter or Facebook. So, that did not bother me. But, in some places, Gmail mails downloaded. Don’t know how. Foreigners use their own Virtual Private Network (VPN) to overcome the official firewalls. But, apparently, it is a cat-and-mouse game with the authorities. The WiFi at the hotel was weak, however. Foreigners can own satellite dishes and watch foreign channels. Locals get to watch CCTV.

I did not get the impression that China was cooling off on BRICS. On the contrary, I think, they find uses for it. It provides them a platform to pursue bilateral power agendas under a multilateral cover. Then, they can always intimidate (or seduce) their relatively smaller powers within the BRICS group.

Samir Saran had said this about Russian attitude towards China:

Still, never in their wildest dreams would China’s leaders have imagined the servility Russia is now demonstrating.

A Russia that once killed the opportunity to integrate with Western Europe because Moscow was unwilling to play anything less than ‘big brother’ now seems willing to play second fiddle to the Chinese dragon. Such was the level of kowtowing to China’s ambitions and agenda that many at the track II meetings over the past couple of months remarked that Russia had officially replaced South Africa as China’s ‘B Team’ within BRICS.

One Russian proposition went so far as to suggest that the New Development Bank (NDB; a joint BRICS development bank but one which is strongly influenced by Beijing) must support and lend to the Chinese One Belt One Road initiative. This was reminiscent of the concentration of all financial flows in the past century serving to reinforce US power.

There is room for disagreement with the equivalence he draws between the financial flows to the USA and Russia’s proposal to have the NDB fund OBOR. But, this is not the occasion to debate that.

On the Doklam standoff between India and China involving Bhutan, Jeff Smith in ‘War on the Rocks’ has a very comprehensive piece. Worth reading. For Indian perspectives, I recommend Shyam Saran, Brahma Chellaney, Siddharth Singh and Nitin Pai. For Chinese perspective, you always have the ‘Global Times’.

Will write on the other fourteen days of this sojourn separately.

RBI MPC Meeting Minutes – June 2017

Last week, the Reserve Bank of India (RBI) released the Minutes of its Monetary Policy Committee (MPC) Meeting held earlier in June. It made both for interesting and for sad reading. It was interesting because, for the first time, there was one dissent in the meeting. Prof. Ravindra Dholakia dissented. He presented a case for a rate cut for 50 basis points, rather eloquently and cogently. Cannot say the same of others.

Dr. Pami Dua, one has noticed, rather diligently tracks the Economic Cycle Research Institute in the US. One doubts if the U.S. Federal Reserve does that. ECRI’s recession warnings in this cycle have not materialised. In any case, to what extent they matter to India is unclear to me.

The excessive concern of many MPC members with farm loan waivers was disappointing. First, they are being spread over a few years.  Second, they are addressing a distress condition and that is not the same as as unprovoked fiscal give-aways. The latter is fiscal expansion. The former is merely about preventing the economy from sliding further into a slowdown and disinflation. Third and more importantly, as long as the States do not exceed their overall budget deficit, loan waivers cannot be incrementally fiscally expansionary. Dr. Ravindra Dholakia had done well to point that out. There are other reasons to object to loan waivers. But, an inflation risk is not one of them. Not this time. The farm loan waiver that UPA 1 government did in December 2007 deserves to be blamed for that and much more.

He also brought out an important point that if the unexpectedly low inflation rate seen in April was enough for RBI to revise its inflation forecast lower, then it should be good enough to cut rates too. One cannot have it both ways.

Also, it is a truism that one can always wait for more data. But, that is not going to solve the problem. In theory, with every passing month, one has more data. There is a trade-off between waiting for certainty and acting. Certainty will always be elusive in macro economics with uncertain lags. Judgement is inevitable. In the previous three months, actual inflation had undershot the central bank’s expectation.

So, a central bank that moved to a neutral stance in February has had enough time to observe the underlying behaviour of inflation and respond by June. It chose to wait again. That is somewhat inexplicable.

The following observation of the Deputy Governor, Viral Acharya was puzzling:

Accommodation in monetary policy during 2015-16 did not get transmitted to the corporate sector, and private investment remained weak then in spite of the monetary stance. The Treasury gains accruing to banks in this time, while not a direct concern for the monetary policy, only masked the true stress of their balance-sheets.

If the rate cut did not get transmitted in the form of loans but enabled bank balance sheets to get better, that is also a legitimate and justifiable reason for an easing of monetary policy. Banks, under pressure to make more provisions out of profits, were reluctant to do so because it would cause their net profits to decline and make the management look bad. But, if they found some extra gains from their bond holdings, wouldn’t that not make them more willing to recognise bad loans?

I wonder if the Deputy Governor has gotten his logic inside out or may be, I do not know something that he does. That is always possible.

In fact, a good friend pointed out a puzzling comment that the Deputy Governor had made in the February MPC Meeting. As per the Minutes,

The balanced budget, by focusing on fiscal stability and expenditure reorientation to rural and housing, seemed to exonerate the Committee from the burden of skewing rates to bridge the output gap and instead allowed the Committee to focus squarely on the inflation-targeting mandate. [Link]

Probably, he meant to say, ‘expansionary budget’. In that case, it does take the load off RBI of trying to orient monetary policy towards stimulating economic activity. A balanced budget does the opposite and, in fact, requires the central bank to offset fiscal prudence by loosening monetary policy.

In any case, for me, the budget for 2017-18 was pedestrian. Neither prudent nor expansionary nor balanced. It was a nothing budget.

Finally, it is somewhat worrying that the MPC did not discuss the uncertainty caused by government policies – for good or bad reasons. Their note-ban exercise, tax claims and pursuits, real estate regulation bill, benami bill, forthcoming Goods and Services Tax have induced uncertainty over and above the impact of stressed balance sheets.

RBI released the 77th round of Quarterly Industrial Outlook Survey on April 6th. Perhaps, the questionnaire was sent out in February or March. It should have included specific questions about higher or lower uncertainty arising out of note-ban and GST. It did not. I think they missed an opportunity.

I am also struck by the fact that it did not occur to any of the MPC members, if one went by the Minutes of the meeting.

In sum, on reading the Minutes of the June MPC meeting, one get the impression that, barring Dr. Dholakia, others seem to be in need of urgent acquaintance with the art of decision-making under uncertainty.

Whose standards are poor? – part 2

In response to my post here, a friend responded. Here are select extracts from the email correspondence:

States deficits have indeed increased (excluding UDAY) but are still within the 3% limit that was fixed for them. They have not exceeded the limits, and they do have a binding force that prevents them going above–namely the Finance Ministry which can refuse permission for bond issuance.

There is very low probability of states exceeding 3% (not counting UDAY). In the 10+ years since Fiscal Responsibility and Budget Management (FRBM) was legislated  in states, out of a potential 300 or so violations of the 3% limit, (30 states X 10 years), only about 10 cases (state-years) has it happened till now and in each case it had to be offset by reduction in borrowing the next year. By the way, the 14th Finance Commission recommended a higher Fiscal Deficit limit for states (e.g., Telangana) that meet stringent debt criteria. About 5 states meet them, and they would be within the limits permissible even if they reached 3.5%. This also could skew the average.

Further, the states cannot, on their own, violate the ceiling –because it is fixed in advance in absolute rupee terms at 3% of the estimated Gross State Domestic Product (GSDP) calculated by the Centre. Permission to issue bonds is controlled by RBI at this absolute level for a given fiscal year. Bonds are issued through the RBI’s debt office. What can happen is that, ex post, the Central Statistical Organisation (CSO)’s calculation of GSDP may be different from the earlier estimate. IF the denominator moves adversely, what was 3% (same numerator) may become 3.2% because of a smaller denominator.

However, the reality does not appear so straightforward. My friend is not necessarily wrong but it would be difficult to explain away the ex-post deficit ratios of many States over the years as marginal overshoots. More below.

In the month of May, ‘The Economist’ wrote a Leader and an accompanying article on the finances of Indian states. You can see them here and here (may be, behind paywalls).

In the ‘Leader’, there is a sentence:

Indian states are meant to keep their budget deficits below 3% of GDP. But this rule is often trumped by political expediency.

There is another sentence:

It is time to signal that they bear responsibility for their own borrowing, and to end the perverse incentives that encourage them to dig themselves ever deeper into debt.

Both these comments are partially true. Evidence points to the opposite for non-special category states but evidence conforms to the above statement for special category states. I had painstakingly manually entered the actual GFD/GSDP ratios for 28/29 states from 2008 to 2015 – that is seven financial years, from the RBI Annual Study of State Budgets. Violations of the 3% deficit rule are not sporadic.

That special category states are seen to have violated the ‘Fiscal Responsibility’ in hindsight is a bit disappointing because they get additional grants from the Union government. To understand what ‘Special Category’ status means, see here.

It points to many forces at work. Either they underestimate their spending or overestimate revenues or growth wilfully, gaming the system, or there is no competence or expertise to do them correctly. Or, it is that the denominator,  GSDP, is so badly overestimated ex-ante that the final numbers push up the GFD/GSDP ratio.

May be, ex-ante, the Union government never allows a deficit more than 3% except under very special circumstances. But, ex-post, what is the penalty for doing so? To be sure, non-special category status States are not serial violators of the deficit rule. That is, if the GFD/GSDP were above 3.0% in one year, it would be much below in the following year.  That is mostly true for the 17 or 18 non-special category States. But, there are exceptions even there. Until 2014-15, for which actual data are available, West Bengal, Kerala and Punjab have been somewhat persistent in their violations of the deficit rule.

In fact, the XII Finance Commission provided for special grants to West Bengal, Punjab and a bit to Kerala, to bring down its revenue deficit. See Table 10-12 of the Twelfth Finance Commission Report for the full details of the various special ‘Grants-in-aid’ allotted Special and Non-Special Category states.  Yet, these three States – West Bengal, Kerala and Punjab – have been offenders on the deficit ratio.

With the exception of Jharkhand, most of the other States signed up to Fiscal Responsibility Legislation (FRL) between 2005 and 2006.  See Table 2 of the RBI’s Study of the State Budgets 2008-09.

The article has a following sentence:

a 3% annual deficit cap is waived as often as it is enforced.

Even though FRL exists, it is not clear what penalties does the Union government impose for violations of FRL. It would be difficult for it to do so given its own ‘fair weather’ record on fiscal probity and prudence.

It is true, though, on a consolidated basis, the States’ GFD ratio had not exceeded 3% since 2004-05. See page 42.

Indian Public Finance Statistics for 2015-16 are available here.

May be, it will all be more consistent and credible with the Fourteenth Finance Commission.

This article in ‘Indian Express’ (from 2016) does a far better reporting job:

There will be year-to-year flexibility for relaxing fiscal deficit to states subject to fulfillment of conditions as specified in the FFC recommendations. States should have had no revenue deficit this year and in the preceding year. The states will be eligible for flexibility of 0.25 per cent over and above the fiscal deficit limit of 3 per cent of GSDP if their debt-GSDP ratio is less than or equal to 25 per cent in the preceding year….

… States will be further eligible for an additional borrowing limit of 0.25 per cent of GSDP this year if the interest payments are less than or equal to 10 per cent of the revenue receipts in the preceding year….

If a state is not able to fully utilise its sanctioned fiscal deficit of 3 per cent of GSDP in any particular year during the 2016-17 to 2018-19, it will have the option of availing this unutilised fiscal deficit amount only in the following year but within FFC period.

On May 12, RBI released its annual study of state finances. Appendix Table 1 has a statement on combined fiscal deficits of States. The number for 2015-16 is 3.6% and that includes UDAY – restructuring of State Electricity Boards – related expenditure.

In the final analysis, what all this means is this:

The main impact of farm loan waiver and the implementation of the Seventh Pay Commission recommendations will be on quality of state expenditure–less for good projects/ desirable schemes and more for sops. Tamil Nadu has perfected this over the years without violating the FRBM limits. In case, any one has forgotten, Tamil Nadu offers Amma Idli, Amma water, Mangal Sutra, wet grinders, laptops, free electricity to farmers and free and subsidised rice at the fair price shops.

So, this post is all about clarifying the quantitative aspects of fiscal deficits of Indian states. The evidence is mixed. Violations by individual states have been reasonably widespread even after FRL in 2005 and in 2006. Overall, combined GFD/GSDP of States has remained below 3.0%, however. Going forward, as to whether  the quantum would also violate the 3% rule, judgement is reserved.

The quality of their expenditure might deteriorate in the coming years, unless the Goods & Services Tax collections far exceed expectations.

Postscript:

(1) Ragini Bhuyan’s well researched article in MINT shows that credit rating agencies do have a bias against emerging economies and not just India:

As a 2013 paper by Andrea Fuchs and Kai Gehring of the University of Heidelberg showed, ratings agencies tend to favourably rate their home countries as well as countries that share strong economic ties with the home country. This may explain why China, the US’s largest trading partner, is rated much better than other emerging market countries by US-based ratings agencies.

The ‘real illusion’ in India

It is nearly two weeks since I wrote the piece titled, ‘Raghuram Rajan has the last laugh’. I cannot believe it is almost two weeks!

In that post, I had mentioned what the Government of India needed to do:

It has pursued a policy of targeting tax dodgers and other wrongdoers in the business community. Nothing wrong here. I am not even going into the question of whether the government had been selective or unbiased in these pursuits. It has done well to do this for it is never the case of this blogger that India’s private sector is an epitome of business ethics and virtues. Far from it.  India’s economy or capitalism always was in peril and is in peril from India’s capitalists with very few honourable exceptions. So, the pursuit was fine.

But, the government should have realised that it would have an impact on sentiment and on investment by businesses. It must have had a Plan B already. [Link]

But, this was not the Plan B I had in mind. The Government of India is setting up an anti-profiteering authority to ensure that the tax credits accruing to businesses under the new ‘Goods and Services Tax’ (GST) is passed on to consumers and that there is no profiteering. Perhaps, the government is paranoid about the inflation impact and hence, of the Reserve Bank of India’s tight money policy. It desperately wants low interest rates. Or, it is really worried about popular backlash that could arise if profiteering were rampant. More likely both. Alas, the road to hell is paved with good intentions.

This morning, I read my friend Niranjan’s piece in MINT on Money Illusion. I think, if I understood him well, his point is that the public are used to high inflation rates and expect their nominal earnings to rise at a certain rate based on their own estimates of what the inflation is. Since prices are rising far slower, probably, incomes and earnings of certain categories of the society – small businesses, wage-earners, may be? – are rising far too slowly. Naturally, they feel unhappy about it. Hence, they may be holding back their spending, etc.

Although the real growth rate is around 7%, the nominal growth rate is lower – around 10% to 11%. But, society is used to nominal growth rate of around 15% and the concomitant growth in many nominal quantities. That is not materialising and hence, they feel that growth is suffering. That is money illusion. This can also become a vicious circle. Or, it probably, has already.

As hypotheses go, this is not a bad one.

But, I have some reservations on Niranjan’s hypothesis:

(1) The 7% growth rate that is reported under the new methodology and new base year 2011-12 may not be the same as the 7% in the old methodology with the old base year, 2004-05. In other words, we do not have a benchmark. Under the new methodology, the potential growth rate of the economy may be 10% or 12%. Who knows? May be, that is a reason, the inflation rate is declining. NO, scratch that. I have a better hypothesis that follows.

(2) Some nominal quantities such as credit growth are really low, even after one adjusts for lower nominal GDP growth and also for the fact that electricity boards may not be borrowing as much as they used to from banks as before, after UDAY (debt restructuring for State Electricity Boards). Further, many FCNR (B) loans taken by Indian businesses are being unwound now.

Notwithstanding these special factors, it is difficult to argue that credit growth numbers are better than they really are. They do indicate both absence of demand for credit from potential borrowers and banks’ capacity to supply credit.

(3) The implicit assumption he is making is that the Indian economy is indeed growing at 7% real and it is the absence of inflation that makes us feel that there is no growth, because we are used to thinking in nominal terms.  Actually, I question the premise that we we are indeed growing at 7%. I very much doubt that.

If we drop the pretense that we are growing at 7% or thereabouts, then there is no money illusion to speak of. The angst is real.

I think one of the reasons – it, too is a hypothesis – that India’s inflation rate is declining – and it does not preclude economic explanations – is that economic uncertainty has increased relentlessly in the last one year +. It is still rising and that it has dampened economic activity and hence, weakened aggregate demand except for personal spending to a limited extent. Hence, there is no inflation impulse. Yes, yes, I am aware that, in India, food items has a weight of 45% in India’s consumer price index (CPI) and that the prices of agricultural produce have been declining. In fact, even Wholesale Price Index (WPI) inflation is low and the weight of food in that is not this high. It is more weighted towards manufacturing. So, my hypothesis is highly plausible.

Why do I say that uncertainty has been rising relentlessly? India’s tax terrorism has been relentless – many tax circulars and notifications have been issued and then withdrawn or clarified (The SARAL form was changed to include declaration on assets and then withdrawn and taxation of mutual fund transactions in third-country locations was announced and clarified and amended later). There has been badly designed tax amnesty schemes. There has been the pursuit of black money. Retrospective taxation remains in the statutes.

Now, there is an anti-profiteering authority. It is not possible to arrive at a mechanical or mechanistic interpretation of profiteering. But, that risk now exists. Going by past record, that risk is non-trivial.

Then, there was the pursuit of non-performing assets guided by the Reserve Bank of India, under the previous governor. In any case, loan growth had slowed under the weight of bad assets in the books of banks and under the weight of high liabilities in borrowers’ balance sheets.

There has been the note-ban exercise which created its own uncertainties, besides acting as barriers to transactions in rural commerce, in agriculture. The All India Manufacturers’ Organisation (AIMO) had done surveys that found extensive impact on rural employment. Now, AIMO has actually sought a postponement of GST. Unlikely to be conceded.

The real estate sector, awash with black money, has been hit by the note ban. Then, they have had the Real Estate Regulation Bill. Anecdotal evidence suggests that real estate sector activity has considerably slowed. It showed up in the national income statistics for the fourth quarter of 2016-17. I do not think it is over yet. Probably, it is just beginning. Then, there has been the benami transactions bill. There is a new bankruptcy code and, may be, the mother of all uncertainties, GST. Hope not.

The icing on the cake is the anti-profiteering authority. The more the government wants to curb and check and prevent profiteering, the more it is going to strike at the roots of economic activity. It is failing to follow the 80-20 principle or management by exception.

Some or many or most of these government measures, legislative proposals may be good for the long-term while some may offer mixed benefits. But, they are inevitably short-term negative for economic activity.  They are essential surgeries, may be. But, painkillers are needed during and after surgery. Further, the recovery is aided with nutritious diet and vitamin supplements. Where were they? Except for Foreign Direct Investment (FDI), nothing much.

No relief from tax terrorism, no reduction or simplification in tax rates, no reduction in operating costs for businesses through reduction in labour costs (payroll deductions), no privatisation, no banking sector reforms. There were lots of promises of reduction in inspector raj.  How much of it has materialised? How many laws have been repealed out of the earmarked laws for repeal in the Union government and in State governments?Indian companies were supposed to have one single corporate ID. I doubt if it has materialised too. Happy to be corrected.

I think the government is missing the problem completely. In general, the government has displayed extreme risk-aversion in the design of its schemes, making static assumptions on revenue foregone, etc. No allowance made for improved activity and compliance on account of lower rates, for example. This risk aversion could be the consequence of a controlling or untrusting mindset. Or, it could be the mindset of the senior bureaucrats in the Ministry of Finance who guided many of these policies. Or, they could be simply reflecting the mindset of the Minister concerned or the Prime Minister. Any or some or all of the above could be influential factors.

The truth is that economic uncertainty in India is not an illusion. It is not money illusion that is behind the absence of ‘feel good’. Given all that has happened with government’s policy decisions and legislative changes – good, bad, hasty, measured, sound, unsound – it is just that Achche Din is becoming an illusion.  This time, it is not a money illusion but a ‘real illusion’.

Indian credit data shocker

On June 12, the Reserve Bank of India had released its monthly credit bulletin. The spreadsheets related to bank credit can be found here and here. They make for very sobering reading. Make that ‘worrying’.

Sonal Varma of Nomura had told me the other day that food credit had slumped. You can see it here. It was 888 crores of rupees in April 2016. It had slumped to 393 crores of rupees (one crore = 10 million) as of March 31, 2017. It had improved to 485 crores as of April 28. Food credit is disbursed by banks to the Food Corporation of India (FCI) and various state government agencies for buying, stocking and distributing food grains. Quite why food credit should have slumped y/y needs to be figured out.

(A friend of mine pointed out that the Government had approved loans to the Food Corporation of India from the National Small Savings Fund and also done some advance release of the food subsidy amounts due to it, reducing the need for FCI to resort to bank borrowing. See here and here.)

Credit growth to industry – small, medium, large – is down 1.0% y/y and is down 2.1% YTD. Of course, only four weeks had gone by in the new financial year. Personal loan growth is the sole ‘bright’ spot registering an annual growth rate of 14.8%. Credit card outstanding is up 32%. Vehicle loans are up 14.9% and other personal loans are up 23.7%. Is this something to celebrate or brood over? I am inclined towards the latter. It is an unhealthy and unbalanced economy.

On the allocation of credit to several sectors within the ‘Industry’ category, most of them show contraction in credit growth, unsurprisingly, on a y/y basis. Only petroleum, chemicals, rubber and plastics show positive growth. Credit growth to telecom is down 11.9%!

Ajay Shah had written recently in ‘Business Standard’ on Indian investment growth or, rather, the lack of it:

What do the micro datasets say? We construct indexes covering all non-financial non-oil listed companies. Annual sales growth was above 20 per cent nominal from 2002 to 2012. This has dropped to 5 per cent nominal from 2012 to 2017. Annual operating profit growth was also above 20 per cent nominal per year from 2002 to 2012. From 2012 till 2017, this has also dropped to 4 per cent nominal per year. Expressed in real terms, both measures declined slightly over this five-year period.

The CMIE Capex database tracks all investment projects. From 2012 to 2017, the nominal growth of the value of projects under implementation is 0. Expressed in real terms, this is negative growth. [Link]

His article and his arguments struck a chord in me.

If one thought about it a bit longer, we feel both sorry for the government and also angry. They have done a lot of far-reaching changes. But, they had not fully thought through the social and economic implications of what they were doing. They were doing structural reforms, alright: Note-ban, benami transactions bill, real estate regulation bill, Tax amnesty schemes, tax raids, now GST. These have come on top of the RBI turning the screws on NPA under Raghuram Rajan and now the new bankruptcy bill, etc.

All of these are upending the traditional methods of doing business and there is uncertainty and lots of it. They are necessary and they will do good in the long-term. But, they do mean short-term pain. The government must have really brainstormed before the budget as to what it can do – in many areas – to offset the uncertainty with ‘feel-good’ measures. It could be not just the macro economy. It could be in many other areas – Education, Social Policies, Irrigation, Privatisation and, of course, tax reforms, corporate tax rate reductions (promised in the previous year’s budget presented in Feb. 2016) and labour cost reductions, etc.

They did not do that. The budget for 2017-18 was too pedestrian. Plus, the crisis in the banking system has dragged on.

On Monday, one read that the Department of Telecom had advised the Ministry of Finance that revenue from the sector would be down by as much as  38%, citing severe financial stress in the industry. Oops! One must add this to the stresses that are building up on the general government deficit.

The communication makes for sombre reading:

The telecom sector is under severe stress because of “rapidly declining revenues” of all the major telecom operators, the telecom department’s highest decision-making body said in a 1 June letter seen by Mint.

In the letter, the commission’s member (finance) Anuradha Mitra said that the non-tax revenue target for the department of telecommunications (DoT) may be revised to Rs. 29,524.15 crore from a projected Rs. 47,304.71 crore. [Link]

Forget about cricket. Worry about the economy. In any case, Aamer Sohail made some sense, actually, on the cricket fortunes of his team.

Amidst these relentless bad news, India’s external balance situation is not a cause for concern. That ‘non-negative’ state of affairs is a good thing. India’s Balance of Payments (BoP) statistics for 2016-17 shows a merchandise trade deficit of USD112.44bn. India’s GDP in US dollar terms, based on the most recent estimate, is 2.2644. That is about 5% of GDP. That is not too bad. However, based on the latest May 2017 trade balance report, India’s current annual run rate of trade deficit is around 7.5% of GDP in the current fiscal year. Gold imports have surged again. Hope GST brings it down.

The overall current account deficit itself was only 0.7% of GDP in 2016-17, lower than the deficit ratio in 2015-16. Net FDI inflows were almost unchanged from 2015-16 (USD35.7bn vs. USD36.0bn in 2015-16). You can see the highlights of the BoP report here.