Indian economic musings

1. I've made this point many times before that India has effectively wasted the past 5-6 years in terms of economic and social reforms, and most importantly, infrastructure. The United Progressive Alliance has been one of the worst governments ever to rule this country, and every passing day provides more examples of that.

First of all, the social agenda that this government tomtomed is a myth and an eyewash. I just want to make that clear because that is the selling point that brought these bad people, but excellent self-serving politicians to power at the center. In words that are very true, a fellow forumer at one of the forums I frequent wrote that the UPeeA's jihad agains the Indian economy continues unabated, after posting yet another failure on the policy front by the government.

Very recently, I had posted a news on how there has been no development in the ports sector in the country in the past one year with the ministry failing to award a single project! The report says that some of these projects are carryovers from the past, thus showcasing that with all the issues such as the Jan Lokpal Bill and this irritating bug called national security, the government has been just trying to play safe almost everywhere where they need to take a stand and actually behave like a government.

Recently, the Prime Minister said there's an international conspiracy to destabilise India's economic growth. What he failed to add was that 'his' incompetent and self-serving government was doing everything in their power to help the conspirers.

I've been in firm favour of the opinion that India needs at least a short term shock to wake itself out of this delusion that this country's economy is going gung-ho. People need to see the truth about how India is a land of bottlenecks and inequalities and inequities, and they need to see how the Government is only too quick to hide behind India's relatively good macroeconomic numbers, creating an impression that everything is fine.

2. Not a lot of people would follow this news but India and Iran were having issues in payments of Iranian oil, with US sanctions on Iran and it armtwisting Germany to stop Indian payments to Iran through a German Bank. The US armtwisted the Reserve Bank of India the same way to ban a regional clearing mechanism for the oil payments. There were a lot of issues involved, with Iran actually allowing India to buy oil on credit for a couple of billion dollars.

In fact, one big conspiracy theory, which I feel definitely has a lot of truth in it, is that one reason the US wants to clamp down on Iran is because that nation wants to sell oil bybassing the US Dollar as the global exchange currency. New York and London are two centers of global oil trade, and any effort by anybody to change this status quo has always been met with stiff resistance. Countries like Japan already trade in their currencies, but the Yen has always been used as an alternative currency and reserve currency by many nations. Now for the first time, the Rupee will be used in international trade, bypassing the US Dollar. For a developing country, and the fact that India is slowly turning to a major American stooge thanks to our Government, this is a big step that will undermine the USD's grip on the global oil trade.

According to a report in India’s The Telegraph newspaper, "Through this method, the path for India's national currency to enter the international currency market will be paved. India's Ministry of Finance has considered a method to resolve the tension over currency with Iran.

According to this proposal, oil buyers are allowed to open Letters of Credit in rupees and this Letter of Credit can be used by Iran to buy Indian products."

Under terms of the arrangement, Iran can buy Indian commodities including tea, rice, machinery, and engineering and technical services instead of using dollars, while Iran under terms of the arrangement can convert its surplus currency revenues from selling of oil to India into euros. Should Tehran endorse the arrangement it will mark the first time that the rupee will be utilized as an international currency beyond the dollar/euro zone.

This is good to see actually, because to the naked eye, either India did it out of sheer desperation and lack of any other option, or that it thought that it doesn't need to be cowed down by the US when it comes to such a thing as India's oil imports, which keep our economy running. I think its the first one - sheer lack of alternatives.

3. Lest I forget, a forumer posted an article by Branko Milanovic titled "Inequality and its discontents", obviously playing on the work by Joseph Stiglitz on globalization. Mr. Milanovic himself is a very accomplished economist and one of the leading voices on global poverty and inequality trends. Always good to read what he has to write on these issues which are the hallmark of today's unequal capitalist world.

A lot of us in India comment on the fact that the rich seem to be getting richer while the poor seem to remain poor. The truth is that it is a fact, and its a fact the world over.

From Tunisia to Egypt, from the United States to Great Britain, inequality is cited as a chief cause of revolution, economic disintegration, and unrest.

This feeling that the incomes of the rich and the poor have diverged in part reflects reality: between the 1980s and mid-2000s, income inequality rose significantly in countries as diverse as China, India, Russia, Sweden, and the United States. The Gini coefficient, a measure of economic inequality that runs from zero (everyone has the same income) to 100 (one person has the entire income of a country), has risen from around 35 to the low 40s in the United States, from 32 to 35 in India, from 30 to 37 in the United Kingdom, from less than 30 to 45 in both Russia and China, and from 22 to 29 in famously egalitarian Sweden. According to the OECD, during the same time frame, the Gini coefficient increased in 16 out of 20 rich countries. The situation was no different in the emerging market economies: in addition to in India and China, it rose in Indonesia, South Africa, and all the post-Communist countries.

The economist does mention how India's rich do not report a part of their income and thus their share in the pie does not reflect their actual share, while the poor's even marginal growth tends to get magnified.

India has become something of a cause célèbre of this problem. Since the country’s economic reform in the early 1990s, its GDP per capita has risen by an average of almost five percent per year. But per capita consumption, as calculated from household surveys, grew only slightly, at one percent per year. Some of the discrepancy is due to the declining share of personal consumption in India’s GDP, but some is thought to have been caused by the low “capture” of the incomes of the rich. In other words, the mean income rose because the rich got richer but did not report it, while the poor and the middle class earned only moderately more income, which was well reported in the surveys, and did not consume significantly more.

Feelings of injustice are driven by domestic factors. When combined with corruption and persistently high unemployment, inequality is transmuted into inequity in people’s minds.

But the perception of today's world by its people is summed up by the fact that we, as individuals in this society driven by consumption and shows of wealth, are driven by the exact same things, and want to know what the rich are doing, not what the poor are doing. The ability of the media to reach anywhere and everywhere just magnifies the glitter of the lifestyle of the rich and famous, thus driving many of those who do not have those things into lives of crime, prostitution and plain old thieving.

Today’s economic ethos is magnified by a media that focuses only on lifestyles at the top -- those of the richest, the most beautiful, the most successful. Of course, the media does not choose its stories arbitrarily; it is driven by public preferences as much as it shapes them. And people want to know about the top.