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Weekly Digest (Economics, Finance and Banking) 7 June - 13 June 2016

Donald Trump seems incapable of believing he could ever have any such a position except that of a monarch of some sort. He has no real understanding of a non–zero-sum engagement. And so the idea of sharing power, or being checked by other branches of government, or even checked by the press seems anathema to him. So, when you have someone with that kind of temperament walking into the constitutional system, you are kind of setting yourself up for a constitutional crisis. 

At least in theory a democracy only works if the people who lose an election concede defeat. Trump has not been a good loser thus far. During the primary he complained that the system was rigged against him and accused Ted Cruz of cheating. He has a history of accusing judges of bias when they don’t rule in his favor. In 2012, after President Obama won re-election, Trump took to Twitter, calling the election a “sham” and urging people to march on Washington revolution to oust him. He deleted those tweets once it became clear that Obama won the popular vote as well as the electoral vote, but that outburst gives us a taste of what could happen if Trump loses in November. 

And here is an amazing piece by Andrew Sullivan, "Democracies End, when they are Too Democratic". 

The feeds on Sunday were majorly on violence, Orlando shootings, ISIS or no, the gun laws are screwed up in the US. 

The 911 call came early Sunday, as the shooting began. The caller was a 29-year-old man, pledging his allegiance to the Islamic State terrorist group. He praised Boston Marathon bombers Dzhokhar and Tamerlan Tsarnaev, and, armed with an AR-15-style assault rifle, a handgun and what Orlando Police described as “an unidentified device,” he engaged police in a gun battle outside the Pulse, one of the city’s most popular gay nightclubs.

+ Badly three days into the Euro Championships, fan violence has been the most disturbing feature across France. Despite some amazing skills with the ball, clashes seems to have overshadowed the mega event. 


Public Finance Public Accountability Collective (PFPAC) Weekly Digest (07 June - 13 June 2016)

There is very little to distinguish policy from macroeconomic indicators as these two often feedback and feedforward the existence of the one another. The two camps hitherto in this digest have been built upon discernibility, and thus have been allegedly subjective. Why keep a division then and thus not be borderless from now on. Some unity somewhere someplace at least! 

Banking in Distress

To the 'hair-cut' shall RBI empower lenders. This involves a complete overhaul of the Strategic Debt Restructuring (SDR), whereby debt to equity conversion would be a possibility without a change in management!!

+ And for all those who thought there was an underlying mystery to why private banks managed to curtail their NPAs, technology and innovation in the answer. Why do PSBs suffer is probably due to robust data analytics. For the geeky at the moment, but hardly a time would move without DA becoming the currency of narratives. 

+ And wow!, this is some positive thinking on part of RBI. Before assets undergo a toxic shock, rejig capital structures of such asset-holding companies by converting debt into Convertible Redeemable Preference Shares (CRPS), which could eventually be either redeemed or converted into equity. 

+ This one is HUGE! Sticking on to its line of bold contrarian views on equity, LIC is raising its stakes in state-owned banking stocks to emaciate stresses based on its philosophy of spotting difference between the valuation and prevalent business cycle empowering it to take bets against the trend.


Multilateral Development Banks

"Don't worry as even with slashing growth forecast, you still remain the fastest growing emerging economy," WB to India. These ain't the actual words, but could very well have been the script if it were to be made theatrical. And what if India was downgraded to low-income economy, missing the bus its compatriots from the BRICS Club boarded, notable headwinds are the genuine cause of worry for this declension, as if these weren't ever. Though, there are infrastructure bottlenecks (WB and ADB's favourite culprit), for some reason, WB toes the RBI line thinking such headwinds could find a natural foe in normal monsoons. BS Story

+ While India’s economy has grown more rapidly in recent decades, the gains have been unevenly spread, and some regions have fallen further behind the rest of the country. In particular, India’s seven ‘low-income’ states have struggled to shake off the legacy of high consumption poverty, low per capita incomes, poor human development outcomes and the persistence of poverty among tribal populations. Addressing this geographical dimension of poverty and well-being will hold the key to improving the lives of millions of Indians. Urmila Chatterjee and Swati Puri writes analysing India Country Partnership Strategy (CPS) 2013-17. 


+ China does not want to borrow from this Bank. It does not make sense for China to start this Bank and then borrow massively from this Bank. India can borrow, India is no. 2. China will also donate $50 billion to this Bank to establish a special fund....the companies of the United States and companies of Japan can participate in the international competition, and they will be treated equally and fairly. This is our basic principle. This is Jin Liqun pouring sense about the role play of AIIB in another interview.

+ Escalating tensions in the South China Sea could force UN Tribunal Ruling to scuttle China's territorial claims to virtually the entire ocean. This ruling would be a test of China's political finesse and could disrupt the upcoming AIIB meeting in Beijing. To get a better idea of China’s looming political-economic conflict here, consider the AIIB’s Articles of Agreement. In them, the AIIB pledges it will ‘not take a position on territorial claims’ (Article 13, paragraph 4), and that for projects in disputed areas ‘member consent is obtained,’ (Article 13, paragraph 4) and that it will ‘not undertake financing in the territory of a member if the member objects,’ (Article 13, paragraph 3). The bank further promises that ‘only economic considerations shall be relevant’ (Article 31, paragraph 2) and that it ‘shall not interfere in the political affairs of any member, nor shall they be influenced in their decisions by the political character of the member concerned.’ If the clauses are breached, AIIB could end up in a sticky position. 

+ BRICS Bank (NDB) signed an MoU with China Construction Bank on strategic cooperation, making this the third such agreement in addition to similar ones signed with Brazilian Development Bank (BNDES) and India's ICICI. This MoU would help collaboration in bond issuance, joint financing and information exchange, with the Chinese Bank supporting with adequate credit lines, and a commitment to invest in NDB's first financial green bonds. 

+ A project for comprehensive, compatible remote healthcare systems could be implemented in the BRICS countries with financing from the BRICS New Development Bank, said Natalya Komarova, governor of the Khanty-Mansi Autonomous Area (Yugra) in West Siberia.

+ Back to the Big Boy IMF and it's reform agenda for the island nation of Sri Lanka. Under the Extended Fund Facility (EEF) of $1.5 billion for Sri Lanka, the agenda envisages six pillars viz. Fiscal Consolidation, Revenue Mobilisation, Public Financial Management Reform, State Enterprise Reform, Transition to flexible inflation under a flexible exchange rate regime and Reforms in trade and investment regime. Time to map macroeconomic stability. 

Policy and macroeconomic indicators

Risks of inflation have exacerbated forcing RBI to hit pause on rate cuts. While the Consumer Price Index (CPI) has risen to 5.4%, Wholesale Price Index (WPI) has moved positive after 6 quarters of staying negative indicating a return of pricing power. With global crude prices on the rise, there is an atmosphere of inflation surprises. If monsoons turn out normal, food inflation flare-ups should be preventable. these factors could very well mean that the RBI is done with rate cuts for the time being. 

+ "We are a relatively poor economy and we want to wipe the tear of every child. At least we want to be middle-income...$6000-7000 per capita. If we grow 8-9% every nine years we double the income. That's still 2 decades," Rajan. Talking of Rajan, Barkha Dutt interviews him, and like the wacky intellect that he is, he bemused not to spoil the party the media is having at the expense over speculations on his second term. 

+ Why do policies wade through choppy and then muddied waters? The case in point here is the National Intellectual Property Policy, which dilly dallies through thrust areas raising doubts more than resolving these. Take for instance the positives of spreading the importance of IP Rights by eminent ambassadors betraying the balance by tilting it away from access to important public goods, or a lack in clear vision on how scientists' work using public money can be commercialised and covered through IPRs. 

+ Choppy trade, as markets record first log fall in three weeks on Brexit and US Fed fears. With the 23 June referendum deciding whether Britain would go on with its European Union membership, and fears amidst Fed meeting and future of rates, a shadow was cast due to weak global market. 

+ Growth or Growth Delusion? there isn't a thin line of differentiation between the two, but what has mattered of late has been what gets sold and what gets purchased, and sorrily it's been the latter. The factory output growth in April, at negative 0.8 per cent, compels the Narendra Modi government to take a break from the celebrations post the 7.9 percent GDP number and acknowledge the tricky pits on the road to a painful economic recovery. The main takeaway from the Index of Industrial Production (IIP) numbers in April is the very clear absence in the private investments pick-up. This has dragged down the overall investment activity as reflected in the capital goods segment. And there is scepticism about growth in some quarters, and the underlying reason is simple: data is puzzling. Meanwhile, another source of doubt about the GDP numbers come through the substantial discrepancies reported in the latest data. This is the result of an attempt to reconcile the GDP figures calculated by using three different methods. Nonetheless, the discrepancies rose by Rs 1.13 trillion during the March quarter over the previous one. If the discrepancies were removed, GDP growth would be a mere 3.9% not 7.6%. Some of this can be explained in basic disparities arising out of the government’s new method of calculating the national account. Yet, when combined with all the other data points, it only adds to the impression that we don’t have a clear idea of what exactly is happening with the Indian economy. 


+ What are discrepancies? These are residual entries. The balance between GDP estimated through the production side and that estimated through the expenditure side is then apportioned to discrepancies.


+ GD Product or Puzzle? Indeed an apposite question. The GDP growth number is an approximation of the underlying economic activity. Many economic decisions of the government and private investors are based on that number. My analysis leads to the conclusion that the GDP number is not ‘as accurate as possible’ and certainly does not inspire confidence. Some corrections are therefore in order. Writes P Chidambaram. The errors to calculating the GDP as noted by the Chief Statistician of India last week. Check this one out from EPW. Was it always damn lies, or white lies in between lies and statistics? 

Currency 

Fake in India. This surely is becoming one of my favourite phrases in resistance to 'make' counterpart. From a fortnight back, this finds an echo this week, as on paper, 1 in 4000 currency notes in the country are fake. Simply put, of the 70 crore Fake Indian Currency Notes entering the economy every year, only a third are intercepted. 


+ US $ enjoys a reprieve, while € and UK £ Sterling feel the heat over Brexit. With the euro zone and the UK in focus, the dollar enjoyed a small reprieve. Dollar bulls had been hit hard since disappointing payrolls data a week ago convinced investors that the Fed will refrain from hiking interest rates as early as next week’s policy review. 

+ Improvements to China's financial markets, such as market-driven interest rate system are needed to help Yuan's continued push towards becoming a global currency. Market forces would reduce distortion and risks involving interest rates and increase willingness among people to hold Yuan assets. 


+ On the other hand, Yuan faces a continued risks on capital outflows. These risks in Chinese equity markets has also been increasing: ’Big’ Chinese shareholders have significantly cut holdings over the past 6 trading days, which may lead to a broader selloff after the market reopens in the second week of June.

+ FCNR redemption could hurt rupee, squeeze liquidity, according to analysts. The rupee could turn volatile due to possible dollar shortages when NRIs redeem a large chunk of foreign currency non-resident or FCNR (B) deposits held in Indian banks, economists say. 
Taxation 

The passing of GST gets closer and closer as the draft is now headed to state Finance Ministers' Committee. The so-called Empowered Committee can now take a call on the final draft. If the constitutional amendment bill to roll out GST is pushed through, the amendment will merely allow for this single tax, which is not possible under the current structure of taxation. At present states are not empowered constitutionally to tax services and the central government cannot tax goods sold in retail.


+ It seems that both the NDA and the UPA are taking the electorates for a ride on GSTTo garner their political mileage, parties have changed positions. When the BJP was in the opposition, it had raised federal concerns; the fiscal freedom of the states would be muzzled by an overbearing centre in a GST regime, the BJP had argued then. But now as the party rules at the centre, it assures the states that co-operative federalism would take care of their concerns. Who would score the winner is as relevant as the game turning out to be a political draw. 

+ Chetan Bhagat calls it "Taxing with Love". And now we are gonna have the Rajasva Gyan Sangam (revenue officers brainstorming retreat!!), where Modi will hold an interactive session with the top brass of the two revenue collection arms of the government - Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC). The conclave will deliberate on a host of issues related to taxpayer services and effective implementation of fiscal laws and government policies, including measures to curb black money generation and circulation. For the time being, BJP calls Congress obstructionist with its policies. 

Corporate Scan

The result. In the market only Adani Wilmar was having stock. 
The wholesale and retail prices was decided by them. They sold the pulses @Rs220/Kg (3.5 USD). Which was collected @Rs 30 (0.5 USD).

Ok now for some simple math.

They accumulated more than 100 lakh tons of pulses in their large scale warehouses. 

10000000 tons (Seven zeros) just so we dont lose track or 10 million tons
Thats 10000000*1000 Kilos=10000000000 (10 zeros) or 10,000 million kilos
Purchase price =30 Sale price = 220
Profit per Kilo = 190 /kilo
Now Adani has a 10,000 million or 10000000000 kilos
Adanis profit = 10000000000*190= 1900000000000=190000 Crore

ADANI WILMAR WILL HAVE MADE A PROFIT OF ONE LAKH NINETY THOUSAND CRORES (A LARGE PART UNACCOUNTED??) OR A COOL 28 BILLION DOLLARS

The multi-billion dollar pulse scam first reported here finds echoes now here and more recently here

+ Make in India is on a tailspin, no matter how much ever fecund the grounds become at industrial conclaves or on foreign tours and trips. In the words of ASSOCHAM General Secretary DS Rawat, "The negative growth of general index further worsens the prevailing levels of demand-supply imbalances in the country. The significant shrinkage in production of capital goods and consumer non-durables shows that industrial revival is going to be one of the major challenges in days to come." The gloom is over the contraction suffered in industrial output by 0.8% in April, the first decline in three months, due to drastic fall in capital goods production and manufacturing activities, prompting demands for pro-active measures by government to boost demand. 

+ If "no matter what" from above is sign of pessimism, so be it. Wait, check out the declining sentiment as to why India Inc. is getting despondent on business. Overall, sentiment regarding production, domestic sales, exports, imports of raw materials, and pre-tax profits continued to remain subdued in April over January. Expectations regarding the costs of raw materials, labour and electricity remained muted. Hence, after showing positive signs of turning in January, the sentiment at labour markets again took a turn for the worse, as a result of which these continued to remain subdued. 


Infrastructure

Bullet Train, or Bullet-Proof Train??? Well, nothing violent here, but the first hurdle to Modi's ambitious bullet-train project linking the western metropolises of Mumbai and Ahmedabad hits a hurdle at the source itself. The BJP at the state does not want to let go of its revenue generated by a financial hub coming up in Mumbai, which incidentally also happens to be the location for the planned station. in Mumbai. The logic: train has too few kms to pass in the state and thus this revenue loss if the station is built cannot be justified. A ballot is stronger than the bullet...twist it to your own advantage!!!

+ Power surplus Gujarat wants another Ultra Mega Power Project (UMPP), even as other states seem to be no longer interested in having them. Power ministry officials said the state has asked for an imported coal-based UMPP. An inter-ministerial group, representing power and coal ministries, visited the proposed site of the plant at Gir Somnath district in southern Gujarat. The site is close to the upcoming port facility being built by Shapoorji Pallonji group. This would facilitate transportation of imported coal, said the official. With this project, the Centre is also likely to change its procedure for awarding UMPPs. From now onwards, the Centre will plan power projects when states demand.


+ Despite any digressions and deviations towards renewables, coal would continue to be the main fuel in India. The IEA projects that India will be the largest importer of coal before 2020, overtaking Japan, the European Union and China. Here is a more dated look at India's focus on energy sector. 

Activism

This is not only a story of a successful protest; it is also not just a tale of a sharply fought well researcher litigation. From the regulatory point of view POSCO’s experience has lessons for everything that should not be done while seeking environmental approvals. This includes breaking up project components, presenting shoddy impact assessments, acquiring more land that is required for the first phase, and its non disclosure amongst a few. Kanchi Kohli's Goodbye POSCO!


+ Talking of Kanchi Kohli, here she is coauthoring with Shalini Bhutani on the state of withering public consultations.  

+ Local opposition pushes out the construction of 6 nuclear reactors from Gujarat. After getting relocated to Andhra, there is unease in the local populace there. opposition is brewing and the ones to be displaced are demanding higher compensation as well outlining potential nuclear hazards. In anticipation of the Washington announcement between PM Modi and President Obama, local revenue officials completed the survey for land acquisition earlier this week. Antinuclear activists had been protesting ever since Ranasthalam was identified by the NPCIL as an ideal site for a nuclear power project a decade ago. 

+ NGOs feel the heat of harassment over FCRA. They pointed out the new rules for the FCRA had been notified in December 2015, doing away with the positive list of activities that are permissible using foreign funds, leaving absolute discretion in the hands of the government to give or deny FCRA licences. 

Audit

CAG admonishes AAP Government in Delhi on its nationwide advertisement campaigns on its first anniversary calling it unjustified, irregular and against the basic financial tenets of public expenditure. 

+ No problem auditing Department of Information Publicity (DIP) and Public Works Department of Delhi Government, but the CAG should also censure Centre's advertisement campaign, which has been expensive. Can you beat Sisodia's logic in justifying AAP's unjustified and irregular expenses? Tit for Tat. 

+ Modi's call for a framework of scientific aunt for scientific departments and institutions may have had allusions to showing red flag to CAG on grounds that CAG was capable of financial audit but not audits of scientific research seems to have boomeranged.

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Capital tends to liberate itself from dependence on the human contribution. That’s why essentially alltechnology is substitutive (imitative). The fraction of the global population capable of making any contribution of non-near-zero value today is no greater than 20% (Damned lies statistics!!). Politics fills the gap with bureaucratic bloat and other make-work, welfare, a variety of protectionisms, macroeconomic junky-stimulus … and the gulf it needs to fill yawns open further every year. Sunny-side up (old-style) liberalism promotes 'The Process' (which is great). If it seriously expects to maintain the narrative that there is a continuous historical trend in which (dysgenically deteriorating) human populations will always find a useful place, it is deeply in denial. Massive swathes of the core industrial infrastructure are already close to laborless. The proletariat was a phase. Socialists have nothing correct and interesting to say on this (like most) issues; they have …