Modi and Rahul -- two different kinds of carpetbaggers !

For those who believe that Narendra Modi 's leadership will make changes, there certainly will be a transformation. The transformation will not be for the ordinary. It will be for the money bags. Ordinary Indians will continued to be stripped of their hard earned savings!  
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 Anonymous  Author 

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"Yaar, we all know Mukesh and Gautam (Adani) will make lots more money when Modi comes to power. But we'll also make some money na. So why are you opposing him, man?"

I was pinged this yesterday by a very-well-known, very-well-to-do entrepreneur pal of mine.

Why indeed?

Why not make hay when the sun's gonna shine?

I'm a true-blue capitalist, and by all accounts I should be supporting Modi - instead of the socialist-sop-wielding Congress or the not-sure-if-they're-Communist-or-not AAP. Right?

But here's what I figured. The Congress is like the Chinese or North Korean government - socialist in name only and corrupt billionaires to the core themselves.

While the BJP is like the earlier Mexican government - basically run to the whims and fancies of billionaire cement-to-telecom owner Carlos Slim. It was proud for some Mexicans to see Carlos Slim become the richest man in the world - but the price of that was higher costs for every citizen in the country for basic necessities and a near-collapse of the country. And a second, more dangerous price paid was the decay of every government institution into a cesspool of corruption.

Sure Modi will be more business-friendly - if the rampaging stock market is to be believed. Antilla will grow even taller.

As Modi lovers say "Modi will bring progress." All I'll add is "...to Ambani and Adani, not to you and me".

Modi will bring with him an era of big business deciding on government policy - and examples are already abound, with the Modi government recommending a price of $14 per million BTUs of gas to be paid out of our pockets to Reliance instead of their earlier committed $2.34 per mBTU - and in the other billionaire Adani getting land and government infrastructure at throw away prices in BJP-led Rajasthan. As it turns out, the Gujarat State Minister for Petroleum, who is responsible for this act of wonderful generosity is, believe it or not, Ambani's son-in-law! Who thought only the Congress would resort to theft by the damaad?

BJP's difference with the Congress will basically be that instead of the government stealing from us and keeping it all only for themselves, this time they'll steal from us, and give it to the Ambanis and Adanis, apart from keeping a lot for themselves - after all, the BJP still has stalwart-thieves like Yeddyurappa, Sriramulu and Solanki at their core.

What does this do to our future? Every institution in the country gets even more rotten. In a time where I want my kids to grow up in a country where they have an equality of opportunity, I wonder if they'll be arrested for crashing a car while the Akash Ambanis get off scot-free by gifting Audis to all accident victims and making some poor driver take the fall in court instead.

I'd like our government institutions to mean something. My dad served in the Armed Forces for 30 years - and today it's a place where you can't get to be chief unless you approve the purchase of expensive weaponry that the ruling politicians get a kickback on.

I'd like the government to be a place where good people join and work. Not people who want a sure-fire way to make money. Once upon a time, it was a matter of pride to be in the IAS. Today, mention you're in government service and the other person eyes you as if to think "Kitna khaata hoga".

Today, how many of you really want your kids to work in government or policy? I'm sure even the Modi-fans among you will say "Nahin yaar - gandi jagah hai". Well, folks, your support to Modi and his bunch of corrupt capitalist backers will make the jagah stay ganda for longer.

There's no point having a Telecom regulator, when Mukesh Ambani and Ratan Tata use Niira Radia to fix who the next telecom minister is going to be. (And to all who believe Ratan Tata is against corruption, perish the thought. Maybe his forefathers were. Go back and read how the Tatas bent over for A Raja, and vice versa, in the Radia Tapes episode and you'll lose any cherished notions of the continuing ethics of the Tata group. Anyway, back to the matter at hand.)

There's no point in having a contract with the government, when a private company like Reliance can get ministers like Jaipal Reddy, Mani Shankar Aiyar and others changed at will to help them break the contracts and rip us off more.

This short-term thinking - "let's get a corrupt government that is big-business friendly for a change" - is what will keep India a rotting carcass for even longer. And this short term move will delay our true economic and business freedom by another five years. It's not a temporary measure - "we should get a honest government after 5 years because AAP is not ready" as some say.

These 5 years are what we are poised to grow in, after the Congress and NCP ripped us off us for the last 10 years. And if the BJP coalition win 272 seats, these 5 years will not be very different from the Congress, with more big sops to the Ambanis and Adanis - not to mention all the coalition partners who will have to be given "plum" ministries to plunder as a price for their support. We will have even more A Rajas getting even more kickbacks.

Believe me, all that stock market boom you're seeing now will dissipate in six months when people, the market and foreign institutions see that it's not a new government - but the same government with different faces. As a Congress (I) friend of mine says - "hum ne bahut khaa liya. Ab paanch saal hajam karenge, inko ab khaane do. Phir vaapis aa jaayenge."

This is not the change we must be voting for.

Sure, I'm told, all this is fine, Arvind Kejriwal is a good guy but he really can't form a government, can he?

Many people in Delhi thought so- so he landed up with only 28 seats. But once people saw he could come to power, and make a difference, many more were ready to vote for him and his party. I understood they would have won 50 out of 70 seats if people knew others were also voting for them. Media didn't help them - they almost never covered the AAP, till after the win. Media's doing the same now.

That's all it takes - your vote. Don't worry about who you think others are voting for. Don't worry about what you read in the papers or watch on TV. Forget the opinion polls, exit polls, whatever. Vote your heart and vote your conscience. Vote for the folks who can give you the country you want to live in, and your kids to grow up in. Your vote, every vote, every seat will make a difference.

Sure, not every candidate these AAP guys put up is perfect. But at least they throw out candidates if a rotten one turns up - unlike other parties who promote the crooks. There's a process here to ensure integrity - while there's nothing as such in the Congress and BJP. And, come on guys, they're a year old and they have no money. They're not built out of billions like the Congress and the BJP. Be a little patient. It's a scrappy startup taking on the evil empires. Luke Skywalker against Darth Vader. Give it a chance.

Then I'm told you want a government with experience? Really? What has decades of experience of BJP and Congress brought us? Which politician has governance experience really? The government is run by babus. And what you need is someone to straighten them up. Not corrupt them even more, like the Ambanis and Adanis and politicians in their pocket do so well.

We don't need Ph D's and grey beards to govern - a base of honesty, integrity and transparency is a far better place to start than 30 or 50 years of thievery and injustice. It's always better to vote for a honest novice than for an experienced thief.

But, you say, "aren't these AAP guys are communist / socialist / Trotskyist or whatever?" Actually, I don't think so. They're a party where the ideology is still forming and where the fundamental base is honesty and integrity. But they at least have a manifesto out. The BJP doesn't yet, by the way.

And as far as being more democratic versus being more Republican, like Modi, I don't mind paying more taxes - if those taxes actually go to build better roads, schools and hospitals that my children and their children can use - and not into Ambani's, Adani's, Pawar's, Sonia's or Praful's pockets, or pockets of the top 0.1%.

From what I've seen, the AAP folks reflect the will of their members and voters. I personally think their resistance to FDI in retail is stupid - and I've told them so, whenever I've met one of their functionaries. And their response is refreshing" "Sir, come and talk with us, explain why you think so, and we're happy to change our minds if we believe you're right". Now I haven't heard any other party say anything like this. Their answers are usually "Kitne paise doge?"

So can these guys get 272 seats to form a government? Perhaps, perhaps not. But I don't think anyone else will, either. And if we are going to be faced with a hung and horse-trading parliament, it's good to have as many new, honest folks in there as possible instead of experienced horse-traders. Give honesty and integrity a vote for a change instead. Every vote counts, every seat counts.

And if it's a hung parliament, it's fine. It's ok. We'll have mid-term polls and more of the honest will get voted in. And if that doesn't do it fully, we'll have another mid-term poll. I have no problem with more mid-term polls. It's painful, but not that huge a price to pay, compared to the benefit of flushing out the rogues.
We'll need one or more re-boots of parliament to get these corrupt Congress BJP, Ambani and Adani viruses out of our system - and the sooner the reboots the better.

And if a hung parliament will cause the reboot, so be it. Let's vote for a hung parliament. Let's deny the 272 and the rule of Ambani.

Oh, as some of you have wondered, why isn't more information coming out about Modi and Congress and Reliance in media?

It's simple - a Congress person owns HT and Mint.

While Ambani owns CNN IBN, CNBC Awaaz, Lokmat, Eenadu, all ETV channels, First Post, First Biz, Forbes India, NDTV, all NDTV channels and 9X.
That's why. These are the only places you'll see a Modi wave, and not on the ground.

Neither of these folks own Facebook or Twitter or Google Plus yet. (Where, by the way, the AAP leads the others by far in engagement, despite the bigger bucks the old guard is throwing around. And despite the BJP guys coming and spitting venom in my comments as they've done every time. You're welcome again, folks! )

So if you believe this post might be a point of view to get across to others, then you could help.

I did put this up earlier, and it went a certain distance. This time I'm paying Facebook a little bit of cash to push it out further. But you could help defray some of those costs, by sharing it with your friends. Sharing is free

Thank you!

Reliance Industries, Why are they above the law of the country ?

A Detailed Dispassionate Look at the Gas Pricing Policy is the Need of The Hour !!-- 

TSR Subramanian

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The FIR filed by the government headed by Arvind Kejriwal against some Union ministers and Reliance Industries Ltd (RIL) has been prominently in the news in recent days. Clearly the Aam Aadmi Party has gone to town on the subject and is likely to refer to corruption and collusion in high places to bolster their electoral prospects. This piece has nothing to do with the politics of the issue; it looks at the facts and related circumstances of the technical and financial aspects of the gas price issue.

The KG-DWN-98/3 deepwater block (also referred to as the KG-D6 block), with a contract area of 7,645 sq km, was awarded in 2000 to a consortium of RIL, the operator, and Niko Resources Limited (NIKO) through a Production Sharing Contract (PSC) for the exploration for natural gas. RIL had signed a contract with NTPC in 2004 to supply gas for its power plants at $2.34 per mmbtu for a period of 17 years. In 2007, the gas price was revised to $4.2 per unit, under RIL pressure. Very recently, the Central government has decided to double the gas price from $4.2/mmbtu to $8.4/mmbtu that would take effect from April 1, 2014.

The cost of production of gas is much less than $2.34 per mmbtu. The fact that RIL had signed long-term agreements with NTPC and Reliance Natural Resources Ltd (RNRL) for supplying gas at that rate for 17 years means that at the rate of $2.34 per mmbtu also, RIL was making significant profits. RIL’s partner NIKO has a 25-year contract with the Bangladesh Government to supply gas at the rate of $2.34/mmbtu.

After this price doubling to $8.4/mmbtu, the gas price in India has become one of the highest in the world. The cost of production at the well-head was never calculated by the government or the Rangarajan Committee appointed by the government. No attempt was made to determine cost of production accurately and independently. According to experts, the maximum price of gas at the well-head would not be more than $1.43 and the current price of $4.2 is already one of the highest in the world. There is also no explanation as to why, when the entire domestic production is consumed internally, the price was fixed in US dollars. This fluctuation in the dollar rate has now effectively increased the price of gas even further.

Even if the government was right that new price would bring in more investment in exploration, there is absolutely no justification for raising the price of gas from existing fields. More importantly, PSC does not permit a revision in the price of natural gas once the field has been declared commercial, and this field was declared commercial at $4.2/mmbtu.

In much of the western hemisphere, the wholesale price (which includes the cost of production at well-head and bulk transportation) is linked to the Henry Hub, based in the US. The average wholesale price for natural gas at Henry Hub was $3.73 in the year 2013 and $2.77 in 2012; this is consistent with the expert estimation that well-head price is of the order of $1 to $1.5 at the most, in general—RIL had in 2009 written to the DG Hydrocarbon in the petroleum ministry that their production cost at the well-head is less than $1 per unit. There is strong suspicion that RIL deliberately delayed recovery/production in anticipation of increased rate fixation by the government, going beyond the agreed terms of the PSC.

Clearly, the pricing formula adopted is inexplicable. To give an example, let us look at the pit-head cost of coal in India and compare with the price of imported coal—the landed cost of imported coal is four to five times that of the domestic pit-head coal. It would be absurd to fix the pit-head price in India at landed cost of imported coal. It is obvious that the price now agreed to with RIL clearly bears no relationship with costs. As per calculations, the impact of this price increase would cost a minimum of `54,500 crore every year at current dollar prices.

It is to be noted that crores of poor in India would be severely affected on account of the huge benefits given to the contractors. Cooking gas prices would at least double; inflation would increase significantly impacting food and energy security giving rise to higher prices for fertilisers, food products, cooking gas and the like. A vast majority of the Indian population lives below the poverty line of $1.25 per day and this will be impoverish them even further.

In principle, businesses will thrive only if they make profits; we can’t expect industry or business to make losses. It is not healthy, however, if governments through crony capitalism route encourage windfall profits—this is not the formula for sustainable development. The problem is further aggravated due to the enormous impact this decision will have on the common man in India, who will pay through his nose at exorbitant rates, to a private contractor, for access to a raw material available within India. A detailed dispassionate look at all the facts and circumstances of this matter is imperative.

Tsrsubramanian@gmail.com

Subramanian is a former Cabinet Secretary

Laundered inflows drives up Indian rupee exchange rates !

Isn't it strange that as global currency markets shiver over the intense Eagle-Bear cold war, the India Rupee is appreciating? The rupee has gained six per cent since August 29, 2013 against the dollar, when it bottomed out. Then the Reserve Bank of India (RBI) and the finance minister P Chidambaram and the mandarins in North Block had then attributed the fall to "speculation." Very little has changed other than the hot air from the mandarins in North Block.

Soaring prices drive Indians to the sea

Curiously, this round of rupee appreciation appears to have accelerated in the second half of January despite adverse economic fundamentals. In January this year the depreciation pressure on the rupee was high, especially since the key economic parameters, inflation, current account and capital flows - influencing exchange rates have remained in the danger zone. Consumer inflation as measured by the consumer price for labour remains in double digits. An inflation differential of one per cent between the $ and the rupee has an 800 basis points impact on exchange rates. With dollar zone consumer inflation at 1.6 per cent, the differential would mean 6.7 per cent currency depreciation.

The second indicator, the current account deficit appears to have shown some improvement. The current account deficit for the December quarter of this financial year was 0.9 per cent of the Gross Domestic Product. This was largely due to the improved exports. Merchandise exports rose 7.5 per cent to $80 billion for the third quarter of this year. About 70 per cent of merchandise exports are to Europe, Americas and China. As for services exports, particularly software and IT services, Europe and the Americas have not shown any increase in imports. In fact, imports into both these regions have shown little improvement. U S imports from all over the world increased by only $3.5 billion in the last quarter of 2013. In the case off Europe, there is little or no increase in imports of goods and services from India. (See here and here). So where has the improved export earnings come from? Certainly not from Africa or Indonesia!

One pointer is that the 70 and 80s trends are reversing. During the 70s and 80s it was imports that were over invoiced. It is exports that are being over invoiced to facilitate money laundering. Increase in gold imports was precisely intended to facilitate that move. This is because increased duties make gold imports through trade channels unattractive. Instead, gold through non-trade channels or criminal channels are encouraged! The duty hikes have pushed up gold smuggling from zero to 200 tonnes in just one year! The second pointer is the boom in the equity markets.

That cash is entering the equity markets, when global financial markets are faced with uncertainty over the Russian-US standoff, is interesting. The Bombay Stock exchange index has just set a record 22000 points. Obviouly equity markets are hardly reflective of the economic or political fundamentals, especially in an environment where barely 1 per cent of the population invest in equities and over 400 million still continue to scrounge for a living.

But then equity markets in India are another vehicle for laundering cash. Curiously this rise in Indian equity markets have coincided with the downturn in the real estate markets of Ukraine, Latvia, Estonia and other European countries where some of India's well healed have park their wealth, beyond survelliance. Preferred assets of these Indians being real estate or farm land in Eastern Europe. See here .

But the Putin Obama standoff has resulted in that Indian cash making haste back home. Therefore it is hardly surprising that even at a point of time of global uncertainty the rupee should be appreciating. By no stretch of imagination is the Rupee a "safe haven currency."  

It is this inflow of foreign currency that triggered the Rupee's rise. But the inflows have some benefits. The appreciation in exchange rate helps the Chidambaram to camouflage the inflationary impact as the government prepares for the 2014 general elections.        

For election expenditure however, what is required is rupee liquidity or cash. This is particularly so in an election year, when most transactions by political party candidates are made in cash. This includes bribing Indian voters a practice that has been refined by India's political establishment and tacitly supported by government.

That cash is in demand was also apparent from currency with the public. There has been a reserve money expansion on account of the inflows. This is partly due to the RBI's purchase of foreign currency from the banks or banks entering into swap arrangements with the central banks for credit. After all Indian banks need rupee liquidity to lend and not dollars. Even if the dollars are parked into Indian bank deposits through non-resident deposits, the withdrawals are made in rupees. Each of these operations leads to demand for rupee liquidity.

The impact is that there has been big increase in currency with the public by almost Rs 1.13 trillion (Rs 1.13 lakh crore) since the beginning of this financial year (April one, 2013). Currency in circulation has also increased by Rs 1.2 lakh crore. This was also part of the reason for the Reserve Bank of India putting on hold the policy of withdrawing currency notes issued before 2005 from circulation, where the year of print does not appear. If the notes had been withdrawn, then cash in the system would have shrunk and election funders would not have been in a position to account for the large amounts of cash for conversion.  

Once the elections are completed, the illusion exchange rate appreciation evaporates and high prices of essential goods will once again overwhelm Indians. 

The fundamentals of a bubble economy kick in, translating into another steep collapse of the currency, hike in prices and tariffs of essential services. Indians will be returned to the time tested standard monotone, "The economic fundamentals are sound and the inflationary pain was necessary and would translate into long term benefits."  But then in the long term we are all dead. Isn't that what the economist, John Maynard Keynes said.

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War threats against Russia and the social crisis in the United States - World Socialist Web Site

War threats against Russia and the social crisis in the United States - World Socialist Web Site
 War threats against Russia and the crisis in the United States

Joseph Kishore

 19 March 2014

Once again, the American people are faced with a full-scale propaganda drive for war. The crisis in Ukraine, set off by a US- and European-backed putsch one month ago, has been followed by a campaign against Russia over the referendum in Crimea that includes economic sanctions and a threatened military response by NATO.
The present crisis is the latest iteration of what has become a permanent feature of life in the United States. Just last summer the American people were subjected to a manufactured war fever that nearly led to a bombing campaign against Syria. Before that it was Libya, with the people being told that immediate military action was required to prevent a “human rights” catastrophe. Threats against Iran and China are permanent, with the possibility of military action always “on the table.”
Over the past 25 years, the United States has been engaged in a campaign of global militarist violence that has taken on an increasingly reckless and unrestrained character. The collapse of the Soviet Union in 1991, accompanied by proclamations of the “end of history,” has been followed by a string of military interventions, from bombings and drone attacks to outright invasions: Panama, Iraq, Haiti, Somalia, Sudan, Serbia, Afghanistan, Iraq again, Yemen, Pakistan and Libya.
An unending “war on terror” proclaimed after the 9/11 attacks has been used to justify constant scare-mongering and the erection of the framework of a police state.
The scenario, with minor variations, has been repeated again and again: A hyperventilating media demonizes the latest incarnation of Hitler; there are manufactured pretexts and hypocritical denunciations from the president; a string of congressmen demand more aggressive measures. Any sliver of information that calls into question the official narrative—such as the fact that the US is working with fascistic and anti-Semitic forces in Ukraine—is ignored.
By now, the population has become somewhat inured to the process, yet the war hysteria emanating from the political establishment only intensifies.
The fact that the country is always at war or on the verge of going to war is a political and sociological phenomenon that requires explanation.
There are, first of all, the geopolitical and financial imperatives of American capitalism. The American ruling class saw in the collapse of the Soviet Union an opportunity to exercise unrestricted control over the entire world. In foreign policy, it conducts itself as though it is inconceivable that a country could have interests that do not perfectly align with those of the United States. Any government that thwarts its ambitions, including control over the most important markets and resources, is a potential target for attack, subversion or regime-change.
However, a central factor in the perpetual drive for war is the social situation within the United States itself. The atmosphere of war crisis serves a definite function—to direct the social pressure within the country outward against the latest proclaimed enemy.
Certain indices give a picture of the state of social relations in America, five-and-a-half years after the crash of 2008:
* Officially, 10.5 million people in the United States are unemployed, but these official figures vastly understate the extent of the jobs crisis. Over the past five years, another 5.5 million people have dropped out of the labor force for economic reasons (and are not counted as unemployed). The percentage of the population that has a job has remained essentially flat since the depths of the 2008-2009 economic collapse, while already meager jobless benefits have been slashed or eliminated.
* Poverty is epidemic, in recent years rising to levels not seen since the 1960s. One in seven US children is living in poverty, ranking the United States 26th out of 29 developed countries, according to the United Nations. A greater percentage of children live in poverty in the US than in crisis-stricken Greece. Some 1.65 million households (including 3.55 million children) live on less than $2 a day per person.
* The response of the ruling class to every social problem has been to lock people behind bars. The United States imprisons a higher percentage of its population, by far, than any other country in the world—743 out of 100,000, or more than 2.3 million people. About one quarter of the world’s prisoners are in the United States, which has only 5 percent of the world’s population.
* Wages of American workers have been under sustained attack for decades, and the share of the national income going to labor has declined steadily. Consumers confront surging prices for basic commodities. Families are saddled with unsustainable levels of debt from credit cards (averaging $15,252 per indebted household), student loans ($32,986) and mortgages ($152,209).
The ruling class has exploited the economic crisis to carry out a vast redistribution of wealth from the bottom to the top. Corporate profits are at record highs, as is the stock market. The richest 400 individuals now possess $2.2 trillion in wealth, an increase of $500 billion from 2012 to 2013 alone. The top one percent has received 95 percent of all income gains since 2009.
In domestic policy as in foreign policy, the past five years represent an escalation of processes that have deeper roots. For four decades the ruling class has been engaged in a systematic effort to reverse all previous social reforms and regulatory restrictions on business, engineering a historic retrogression in the living standards of the majority of the population.
The ruling class itself has taken on an increasingly criminal character, amassing its fortune through fraud, speculation and theft. The depraved social physiognomy of the corporate-financial elite finds expression in both foreign and domestic policy—in war, social counterrevolution and the dismantling of democratic rights.
The tremendous social tensions built up through this restructuring of class relations find no political expression, let alone progressive outlet. The state and its auxiliary organizations, including the media, function as wholly-owned subsidiaries of a ruthless and increasingly criminal financial oligarchy.
Military actions, whatever their geopolitical aims, serve to divert and regulate class antagonisms. The ferocity of American militarism is an expression of the depth and insoluble character of the crisis of American capitalism. It points to the inevitability and necessity of its opposite—social revolution.
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Blog editor's comments : Isn't this what the Ambani group's Relinace is all about. For that matter isn't this this story similar to India's privatisation efforts or the so called sham economic reforms instituted by politically weak ministers, Manmohan Singh and P Chidambaram. Ukraine's present prime minister is the Arseniy Yatsenyuk, also an economist and supported by the World Bank. 

However, unlike in Ukraine, the Indian trio of Manmohan Singh, P Chidambram and Montek Singh have faced opposition. Therefore have never been able to fully implement Washington's agenda in India. The only agenda they implemented was cronyism, soaring unemployment and high inflation caused by income polarisation. The Congress party will pay a high price for that in the 2014 elections.

Jet-Etihad deal clears way for Air India's entry to Star Alliance

In Naresh Goyal's Jet Air, the 24 per cent stake sale to Abu Dhabi's Etihad Airways, there is a hidden message! Etihad's stake buyout into Jet was approved today and brings in approximately $379 million of direct equity resources to the company. 

The financial and equity tie up with Etihad implied Jet has given up its aspiration to join global alliances, at least for the moment. Jet Airways since 2009 was an aspirant to become a Star Alliance member. None of the large gulf carriers are presently members are any of the alliances and have shown little inclination to join any of the three – Star Alliance, SkyTeam or One World Alliance. Large gulf aviation companies, Emirates and Etihaad are pursuing their own partnerships, independent of the alliances. The exception is the Qatar Airlines that joined One World on October 29, 2013.

None of the Indian carriers though are members of any of the global alliances.  The only private sector airline to pursue entry into a global alliance was Kingfisher. Kingfisher had sought entry into OneWorld though even that was thrown out despite Economic Times disinformation in November 2011. Kingfisher's virtual ejection from OneWorld alliance was driven by the company's insolvency and financial delinquencies.

Jet's virtual quit from the race to enter the alliance paves the national carrier Air India's entry into Star Alliance and partnering with Lufthansa. Air India though still  would have to clear some hurdles before the entry to alliance materializes. Air India's entry into Star Alliance was put on put in abeyance by the Star alliance executive council, (comprising of chief executives of the member airlines) on July 31, 2011 on the grounds that the carrier had failed to comply with some of the conditions to join the alliance. However, it was widely suspected in the entire Indian aviation industry that Air India's entry into the alliance was sabotaged by rival carriers, with the prime suspect being Jet Air.

Air India since then however has overcome most of its financial troubles with support from its single stakeholder, government of India, and the acquisition of new Boeing aircraft. Since the beginning of last year, Air India has consistently operated at passenger load factors of 82 per cent, but still some distance away from the domestic industry's best airline, Indigo's 87 per cent. But Air India was far ahead of Jet and Spice jet both of whom are dogged by losses.

Air India operating ratios this year could be well below 100 as low as 97 per cent, meaning operating incomes would be in excess of operating expenditure. Though that could mean operating profits, the national carrier would still need capital support from the government to the extent of $ 2.6 billion (Rs 16226 crore) over the next four years to wipe out accumulated losses of over $1.2 billion (Rs 7500 crore).  Other revenue sources are also likely to come through, if Air India manages to divest some equity from the MRO (maintenance, repair and overhaul) business and lease surplus carriers to other operators, including emerging domestic operators. Both these options are on the table for Air India.

The situation however is not similar for the private sector players. Private sector players unlike Air India are far more vulnerable, especially since their costs, barring those to domestic employees and airport charges, are mostly dollarized. The entire fleets of domestic carriers are leased, linked to floating rates and benchmarked to LIBOR. That means with the currency depreciation, operating ratios have deteriorated, translating to lower profits. The result is both Jet and Spice Jet are staring at red lined balance sheets. But losses also mean raising equity funds become difficult. All debt funded carriers face a Kingfisher predicament, with air assets spending more time on the ground than on the air.

For the Maharaja, it is time to twirl the whiskers and smile again. Good times after all are beginning to return!  

    

A myth called India's high growth!

India's high growth story is turning out to be a lot of hot air and fast unraveling. Companies shutting shop have increased. That is showing up in the rising non-performing assets (NPA) within the banking system.

Delinquent loans, where interest and principal are overdue, with the banks are presently 4 per cent of the gross loan book or Rs 2.5 trillion. On the face of it, the NPA's are just about 3 per cent of India's gross domestic product and is far lower than those in Europe or in the United States providing a sense of comfort.

However, there are another set of numbers that convey worry. Those numbers include companies seeking debt restructuring or forbearance on interest and principal repayments. If that number of Rs 2.3 trillion is also included, then NPA ratio is 6 per cent of the GDP. Then there are corporate guarantee delinquencies. If those numbers are also included, then the NPAs could be higher at 8 per cent or humongous Rs 8.5 trillion, an indication that some of the bank loans are actually to ghost entities. At current dollar that would be $177 billion. It could be higher since some infrastructure companies, especially roads, power and ports that are functioning on deferred funding arrangements (Build, Operate and Transfer) are yet to begin debt repayments are yet to begin with moratoriums in place.

When India was growing at 3 and 4 per cent in the 70s and 80s, gross non-performing assets were just 2 per cent of the GDP. At higher growth rates, NPAs also appear to have increased not just in absolute terms as well. Are high insolvency rates a sign of economic progress?

But here is another reality byte! That India's high growth is fiction is apparent when the GNP (Gross National Product) based measure is used. The GNP measure uses net factor income (NFIA) -- income earned by Indian residents on foreign shores. In 2012-13, the GDP growth at factor costs was 5 per cent and 6.2 per cent in 2011-12. GNP growth was 2.8 per cent and 5 per cent for the same period.

The high GDP growth therefore was powered largely by a yawning current account deficit (implying NFIA is negative) that is presently a record high 5 per cent of the GDP. The last time India went to the IMF and pledged gold in 1991, was when the current account deficit was 2.5 per cent of the GDP. The high current account deficit means that the economy is consuming more than it is producing. Indian government economists (spin doctors?) call it "absorption." That "absorption" is driven domestic consumption, investment and government spending. The latter two are not happening. It is only consumption-- energy consumption particularly diesel and coal. The energy is consumed is for powering large cars and air conditioners and other luxury goods in urban areas, therefore is obvious the "absorption" is akin to pouring alcohol down an alcoholic's throat!

Where is the growth?

Only for a few?

Despite the feverish sales pitch and the neo-liberalism of the country's economists, India is back to the 3 per cent growth of the 70s and comes with an added set of problems, almost similar to Latin America in the early 80s! Energy import bills have mounted and ability to meet the payments have deteriorated manifesting in currency market volatility.

Ideally the high growth should have showed up in rising government incomes. After all that was the promise made by India's economist prime minister, Manmohan Singh in 2004. Instead India's tax to GDP ratio has actually dropped, despite the reforms.

It is really strange that a country that boasting of such growth rates has not been able to improve tax collections or compliance. The post reform tax to GDP ratios are just about as good as sub-Saharan Africa. The tax to GDP ratio of India is 8 per cent and has stagnated there since 2004. The tax to GDP ratios were close to 11 per cent during periods when the country was in the so called "Hindu Rate of growth" of 3 per cent during the 70s, and early 80s.

Yet, the weak ratio is not identified as the reason for the fiscal deficits. India's fiscal deficit in 2012-13 was 5.2 per cent of the GDP or Rs 5.21 trillion. When compared with the rest of the world, it is hardly a large figure especially since fiscal deficits are above 8 per cent in most of Europe and in the U S. Unlike in Europe and the U S, however, India has failed to raise tax resources. Raising the tax to GDP ratio to 12 per cent per cent would mean that India would end up with a fiscal surplus.

Such a move though would mean recovering dues from corporate entities like Reliance Industries and a series of companies that have perfected the art of dodging taxes and high powered filibustering of tax recovery. Is low tax compliance a sign of economic progress or is it capitulation to industrial state where corporate autocracy prevails over public interest?

The capitulation in turn implies that fiscal problems are identified as expenditure related and therefore identified for sequestering. The cuts in expenditure have resulted in crumbling social infrastructure and public services, including national security. The result, India has among the worst public services in the world despite all the tall claims of high growth. Female literacy is lower than in Uganda.

Worse, the low tax compliance resulting from capitulating to the powerful corporatocracy means that the state has little funds to meet its own expenditure, let alone make capital investments and generate employment. That has prompted privatization of state owned sectors, a move that could include public services, including water supply.

But has the private sector delivered? So far they haven't. They certainly haven't in both the electricity and roads. They are unlikely to do so in public goods and services services, since the objectives of the state and private investors are completely different. A welfare state's objective is an economic rate of return on investment.  For the Indian private sector, the objective is almost exclusively quick financial returns. That means the private corporate sector's motive is profits and not societal or national progress. For finance capital objectives are defined by dividends and earnings per share – the faster and higher the returns the better it is.

Up to the 10^th plan period, India's focus on the Economic Rate of Return which meant a focus on development and progress. But few in government now mention economic rates of returns. They appear to have completely forgotten the term.. The, focus shift is on the stock markets.That also explains the national media's redirection of attention from national economic issues to corporate results and stock market performance, as if the latter was the beginning and end of economic civilization.

But corporate profits are not necessarily attained by high employment generation. Employment is more an afterthought. 

Take the case of India's. Infosys that has begun to pink slip employees. The reason is a loosely used and undefined term "under performance." Infosys official justification came in January this year that said, "This (reducing workforce) is done regularly and is not a one-time event. We have a robust performance management system that includes structured appraisals and performance feedback."

The real reason is obviously is to squeeze wages to less than subsistence and reduce workforce to servility, not very dissimilar to bonded labour of the pre-independence times. After all supremacy is for stock holder returns even if it means a regression to sweat shops! The sad truth is that sweat shops are no guarantors of high economic growth. Low wages and mounting cost of living are a ticking time bomb!

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Bondster

Enter the Dragon: Industrial and Commercial Bank of China tip toes into India

China took its first cautious step in entering India's banking market. On Monday, 23 May 2011, the Reserve Bank of India (RBI) approved the opening of a branch of the Industrial and Commercial Bank of China (ICBC), China's largest bank. ICBC's branch is expected to begin operations in six months.   

ICBC had formally made an application after Chinese Premier Wen Ji Bao's India visit in December 2010. This is not ICBC's first foreign operations. ICBC, where U S investment bank Goldman Sachs holds a 3 per cent stake, already has presence in the US, Europe and Asia. This is however, the first time after a Communist government took control in 1949 that a Chinese bank has made a presence in India.

The RBI approval for an ICBC branch in the country was more in the nature of reciprocity. Four Indian banks --– State bank of India, Punjab National Bank, Bank of India, Canara Bank and Allahabad Bank – already have branch presence in Shenzen, Shanghai and Beijing. Some more Indian banks are awaiting approvals for opening either representative offices or branches in China.