Public sector banks merger is not a reform

On 30-8-2019 Finance Minister Nirmala Sitharaman announced a mega plan to merge 10 public sector banks into four as part of plans to create fewer and stronger global-sized lenders as it looks to boost economic growth from a six-year low. After the mergers, the country will have 12 public sector banks, including State Bank of India and Bank of Baroda.

• Except PNB, all anchor banks had exposures of over 10% of their loan book to NBFCs.
• Merging of two weak banks into another weak bank is a decent  idea, under normal economic conditions. But to pass it off as a major reform on a day when the economy hit a six-year-low in growth (~5%) rings hollow.
• Given the limited flexibility on restructuring and rationalization, meaningful cost synergies from PSU bank mergers are unlikely. Core profitability for these banks is likely to remain weak and hence they will continue to depend on external infusions.
• Until the year 1995, the best candidates from IITs and the best universities wrote IAS exams, State Bank entrance exams and the national recruitment exams of the PSBs. But after the liberalization of the Indian economy in 1991, private sector companies grew aggressively and  attracted away the cream of the talent. 
• In the face of this competition, the PSBs with their moribund processes and stagnant salaries have attracted mediocre talent. Any bright spark, despite these service conditions was usually poached by private banks and NBFCs.
• In 1992,  the government realized it doesn’t have the money to capitalize them and started listing them so that they may raise funds from the capital market. But the design of the Act is still intended to serve government goals and not compete on commercial lines.
• True reform will require what financial sector giants like YV Reddy and PJ Nayak have long recommended: Abolish the Banking Companies Act, bring PSBs under the Companies Act, so that clauses like section 49 (ensuring truly independent directors) apply to PSBs as well. This will fix governance somewhat. Then as soon as the capital markets permit, government stake in these PSBs needs to be brought below 50%. This will enable them to recruit competitively and run on market-based principles.  That’s what you call reform.
• For now the PSBs are going to be completely immersed in their integration issues. Past experience showed deep gashes in the merged banks for few quarters after merger. The merging banks have barely recognized the bad loans created before 2013, when a new wave of bad loans created after 2014 started emerging. Instead of tackling  this continued onslaught, every senior banker in the merging PSB will be more worried about what will be his or her place in the new hierarchy. Each branch manager will worry about how to tackle customers of the erstwhile competing bank. They will worry about  repainting their billboards and printing new stationary. 
• And all this chaos with no change at all in governance standards. And at a time when the best PSBs have a net NPA of 6% and capital that just makes it to Basel grade. And at a time when the economy is giving you that sinking feeling.

Read the source article

Four years: Modi's missed, wasted & abused opportunities

The 2014 mandate was fueled by hapless frustration with the Congress-led UPA regime and, more pertinently, the Gujarat development model as an alternative. The campaign, the slogans, the rhetoric were populated with words and sentiments that the people of India wanted to hear. The 50-plus page BJP election manifesto was as crisp as a promissory note, listing imperatives and solutions. After four years of Modi's histrionics, with one year to go for 2019 general elections, we Indians are again at cross roads filled with dilemma and uncertainty.

1. Fighting Corruption ⬆
2. Checking Price Rise ⬆
3. Ease of doing business ⬆
4. The Insolvency and Bankruptcy Code (IBC) for resolving NPA's ⬆
5. Rural electrification ⬆
6. Pace of road building ⬆
7. Jan Dhan Yojana ⬆
8. Mudra Yojana ⬆ 
9. Fiscal reforms ⬌
10. Bullet Trains ⬌
11. Swachch Bharat ⬌
12. Railways modernization ⬌
13. FDI In Multi-brand Retail ⬌
14. Triple Talaq ⬌
15. Surgical strikes ⬌
16. AIMS, IIT and IIM in every state ⬌
17. International diplomacy & PM's frequent foreign travel ⬌
18. Medical insurance cover of Rs 5 lakh to 500 million low-income Indians ⬌
19. Recapitalizing PS Banks ⬌
20. Defense preparedness ⬇
21. One crore jobs creation ⬇
22. Dipped education & healthcare spending ⬇
23. GDP growth rate ⬇
24. Demonetisation ⬇
25. GST ⬇
26. No Lokpal yet ⬇
27. Black money from Swiss banks. ⬇
28. Cashless society ⬇
29. Make in India ⬇
30. Skill development program  ⬇
31. Doubling farmers income ⬇
32. Empowering Women ⬇
33. Kashmiri Pandits ⬇
34. Abrogating Article 370 ⬇
35. Ram mandir at Ayodhya ⬇
36. Zero Tolerance on Terrorism ⬇
37. Persecution of Dalits, Muslims & Christians all over India ⬇
38. NPA's of PS Banks ⬇
39. Privatisation of Air India and other PSUs ⬇
40. Universal medical care ⬇
41. Administrative and civil service reforms ⬇
42. Ganga clean up ⬇
43. Smart cities ⬇
44. Aadhaar Card ⬇
45. Implementing uniform civil code ⬇
46. Corruption in deals like Rafale, Vedanta, Adani etc ⬇
47. Tax terrorism ⬇
48. Implementation of AP Reorganization Act 2014 ⬇
49. Development Packages announced for J&K, Bihar etc ⬇
50. Desertion of NDA by allies  ⬇
51. Federal Polity ⬇
52. Institutional autonomy ⬇

Overall, the Modi government has done seemingly well in patches, due to low oil prices between 2014-2017, but failed in significant areas. Its electoral machinery is formidable. The irony is that Modi instead of imposing himself on the bureaucracy, the bureaucracy has imposed itself on Modi, imprinting its views, values, and methods. It is the taming of Modi by the babus. But after four years, BJP faces anti-incumbency in Hindi heartland states. If opposition parties puts up united face, the Modi government would be voted out in 2019. Combined efforts of Rahul Gandhi, Mamata Banerjee and Sitaram Yechuri only can help the Modi - BJP escape defeat in 2019 General Elections.

By any reckoning, India is worse than it was in 2014 when Modi ascended to power. Modi squandered away the benefit of low oil price regime for 3 years, which was  God's gift to Modi & India to the tune Rs.10,00,000 crores, with his senseless adventures, shortsighted reforms with immature design & implementation. None of the constitutional office bearers today are worthy fellows including Modi himself. Modi doesn't deserve any more chances. Who ever succeeds him will be successful simply because of inheriting worst performance India ever had. Modi will be remembered as one of the worst prime ministers, even below the infamous VP Singh.

Modi's shallow talk

Narendra Modi's speech in the Lok Sabha on Friday 27th November, 2015 while concluding the debate on the Indian Constitution in the wake of the 125 birth anniversary of Dr BR Ambedkar was not only excellent, but so appalling that even his hard core opponents were compelled to appreciate it. His statesman like flawless speech has silenced his political opponents. Rising above partisan politics, PM Modi asserted that for his government 'India first' is the only religion and the Constitution is the only holy book. 

Some excerpts are:

• 5:06 PM: Everyone in the house spoke eloquently about the constitution.
• 5:07 PM: Some people have this wrong idea, maybe out of habit, that PM will respond to everything in the end. But I am speaking now, expressing my views, just as any other member here did.
• 5:10 PM: The growth of this country is because of all the Prime Ministers and all governments. We can never say that past government has done nothing. 
• 5:15 PM: No praise is enough for the people who created the Constitution, we can never deny Ambedkar's contribution.
• 5:20 PM: In my Red Fort speech, I had paid tribute to all PMs.
• 5:23 PM: India's Constitution is a masterpiece of writing, written by Babasaheb Ambedkar. Even today Indian lawmakers are unable to write a flawless law.
• 5:40 PM: Just because we have majority, we can't impose our will.
• 5:47 PM: Constitution's purpose is not just to define three organs of the State, but also limit their authority.
• 5:50 PM: Consensus strengthens democracy.
• 5:51 PM: It is important to strengthen rights and it is as important to strengthen duties.
• 5:58 PM: We must give justice to all.
• 6:00 PM: 'India first' in the only mantra for our government.
• 6:12 PM: Lok Sabha adjourned.

Whether Modi's statesman like speech is a only ploy smart politics to disarm the defiant opposition, is a matter of time to unveil. This might be smart politics by Modi to reach out to the opposition in desperate need to pass stalled reform bills including GST. Or it might also be a climb down in Modi's attitude following the worst electoral setback in Bihar. 

That was in 2015. Now in 2018, Modi is primarily the face of BJP in assembly elections and is only a BJP's superstar more than the leader of the country. BJP had reduced the character of PM Modi, by using him as a face of a political party and attacking and abusing opposition during election campaigns. Modi in his election rallies addresses should have limited himself talking about development only and maintained the image and stature of the Prime Minister. Deep desire to win every election and destroy opposition parties made Modi & BJP stoop to such unimaginary levels. He failed to continue winning back admiration from all quarters. While campaigning in elections, his vitriolic attacks on the opposition, criticizing them very hard that had resulted not only in bad relations but also diminished his position as the Prime Minister. Today, Modi is no more the leader of the nation but leader of BJP only and proved himself unfit and unworthy of PM position.

See the contrast. In 1996 AB Vajpayee resigned PM position, unable to obtain majority support and refusing to resort to unprincipled horse trading. And these days PM Modi does everything and anything, principled or unprincipled, to win an election and to form government whether BJP has majority support or not. It was well established again and again that Modi never 'walks the talk' nor 'talks the walk'. With his god gifted oratory skills and rhetoric he misleads & cheats audience again and again. But for everything there is an end. Modi's wrong doings might end in 2019. Until then, India and its poor people have to bear the burden of demon thy name is Modi.

Moody's upgrades India's rating

• International rating agency Moody's has upgraded India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. 
• The rating agency has cited+ the government's implementation of its reform programme which includes introduction of the GST, Aadhaar system of biometric accounts and direct benefit transfer schemes and measures taken to address bad loans in the banking system.
• The rating upgrade comes after a gap of 13 years - Moody's had last upgraded India's rating to 'Baa3' in 2004 during Vajpayee led NDA-regime.
• The rating upgrade will reduce cost of international borrowing for Indian government and Indian corporates due to reduction in perceived credit risk. 
• The move will also improve the sentiment in the equity markets.
• These reforms implemented to date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and fostering strong and sustainable growth and improve its global competitiveness. The rating agency Moody's believes.
• Some investors termed it a surprise given that India recently surrendered its status as the world’s fastest-growing major economy amid sweeping policy changes. 
• The upgrade could prove to be a big win for the ruling party, which is facing increasing attacks about the economic slowdown before key elections in Modi’s home state next month and a national vote early 2019. There are several challenges for the economy, particularly a high debt burden and delayed labor and land acquisition reforms and little room for fiscal complacency, especially ahead of 2019 elections.

In Dec 2016 India's request for ratings upgrade was bluntly turned down by Moody's citing high debt burden, its low debt affordability and resolution of banking sector's bad loan problems. Moody's also stated that a ratings upgrade for India was some years away, depending on the progress on reforms. Between Dec 2016 and today (Nov 2017) ground situation has actually worsened but some reforms are under implementation and results are yet to be seen. Why Moody's hurriedly announced ratings upgrade is unknown. Today, India is facing plethora of problems due to reckless adventures by Modi impacting and destroying informal sector and agriculture sector which together contributes 45% of GDP and 80% of jobs. Improvement in economy prior to 2019 general elections is unlikely due to lack of fiscal space. Direct benefits of this ratings upgrade are confined to corporates and businesses immediately and trickle down benefits would reach common man after a while, in insignificant proportions.

Modi's Illusionary of reforms

Modi is a Hindu zealot disguised as an economic reformer, or the other way round? Modi has pandered to religious sentiment by appointing a rabble-rousing Hindu prelate as CM of UP. Modi’s government is the strongest in decades. The opposition is hopeless. The low oil price of late has been boosting growth by perhaps two percentage points a year. India is young. He has not come up with many big new ideas of his own (the GST and the bankruptcy reforms date back long before his time). Over a quarter of the people joining the world’s workforce between now and 2025 will be Indian. And there is enormous scope for catch-up growth: India is the poorest of the world’s 20 biggest economies. Modi, in short, is squandering a golden opportunity. 

• But he has also pushed through reforms and these are deceiving. 
• The GST, is unnecessarily complicated and mangled, greatly reducing its efficiency. Keeping petroleum products and liquor outside GST is unnecessary. A simple GST might have added two percentage points to GDP growth. The complicated version will probably yield less than half that and only after a painful transition.
• The new bankruptcy law is a step in the right direction, but it will take much more to revive the financial system, which is dominated by state-owned banks weighed down by dud loans. The government has known about the problem for years but has done little to resolve it.`
• When Modi was elected many business leaders winced him as a reformer promising “minimum government, maximum governance”. It was hoped that the state apparatus would be aimed away from trying to do everything and towards providing basic services, such as education, health care, a functioning market for land and labour, a working judiciary, and a stable and predictable regulatory environment in which the private sector could create jobs. Three years on, those hopes are fading. 
• Corruption seems to have abated, at least at the highest levels of government. But he has demonstrated little appetite for the reforms which would bring sustained growth that could transform the lives of Indian citizens.
• Analysts estimate that low oil prices alone has boosted GDP by 1-2%. Modi also benefited from the tenure of Raghuram Rajan, whose inflation-targeting regime has helped keep prices in check. (Mr Rajan was, in effect, sacked by Mr Modi in 2016.)
• Growth of 7% or so is nothing to scoff at. But Modi’s ministers speak of an economy expanding by 8-10% a year is necessary to absorb the 1 million Indians who enter the labour market every month. Achieving this would require deep and broad reforms.
• The central government’s response to the difficulty of buying land to the reform of rigid labour laws, has been to pass them to the states. 
• One of the big reforms it has undertaken, demonetization of 86% of currency, in an effort to curb the black economy was counterproductive, hamstringing legitimate businesses without doing much harm to illicit ones. It was certainly brave but did not make it a sound policy. Lack of planning and unclear objectives mean the exercise has damaged the economy; its potential benefits remain hard to judge. It seems to have paid off politically. The BJP thumped opponents in UP elections in Feb 2017. People queued for days on to exchange old banknotes but were apparently consoled by claims that the rich were suffering far more (they were not).
• He is no good at working systematically to sort out the underlying problems holding the economy back. Lending to industry, which once grew at 30% a year, is contracting, for the first time in 20 years.
• Infrastructure projects are stalled for lack of cash and corporate India is in the doldrums. 
• Modi should have recapitalized state-owned banks and sold them off, to get loans flowing again. 
• Too often, he ducks essential reforms. When courting voters he talked tantalizingly “I believe that government has no business to be in business,” he proclaimed. But the much-discussed privatization of state-owned firms is yet to take place. The problem is that Modi is not that brave as he exhibits. 
• Modi has proved the exception rather than rule. “We elected a radical, we got a tinkerer,” rues a banking boss.
• He should be working to simplify the over-exacting labour law, property purchases are a forbidding quagmire; try to improve the quality of registers to reduce the scope for disputes. 
• His government recently created havoc in the booming beef-export business with annual earnings around $4 billion (nearly a third of the country’s trade deficit) from exporting beef, and last year was the world’s biggest exporter of the product. But nearly all of it comes from buffalo, not cow.
• Modi has kept the focus on smaller projects at the expense of broad reforms. The government has proved adept at dealing with the consequences of bad policy rather than recasting policy itself. One scheme put forward by Modi bailed out state-owned electricity-distribution firms at vast expense, because their weak financial position was hampering efforts to electrify rural India.
• The “Make in India” campaign, designed to lure foreign manufacturers, has loudly proclaimed the country open for business, organizing conferences and photo-opportunities for Modi and foreign bosses. But little has been done to tackle the shortcomings that discourage foreigners from building factories in India.
• Most economic activity takes place in the shadows. A round nine in ten workers toil in informal jobs. One of the aims of demonetization was to bring more of India into the open. If it has achieved that, it is only by clobbering the informal sector rather than helping the formal one.
• Companies deemed to earn excessive profits are hounded: makers of stents, pharmaceuticals and seeds have been forced to cut prices recently.
• A plan to improve the skills of 500 mn Indians by 2022 has been hastily dropped. A Rs. 400 bn public-private fund unveiled in Dec 2015 to finance infrastructure is reportedly yet to find a single investor or project. This government moves from decision to decision, without checking performance or compliance.
• Senior ministers relegated to the edges of a policy making machine run by a tight group around him, few people know what Modi has in mind. But most conclude that his core beliefs are already in evidence. And with the economy ticking along nicely thanks to the oil dividend, overhauling it has not required, or received, much attention.
• GDP growth faltered in the latest quarter. The sag seems to have begun before demonetization but has been aggravated by it. Creation of ever fewer jobs in the formal sector have added to a recent sense of economic malaise. Political attacks on the government’s job-creation record are common.
• Rules issued in May to protect cows have put in jeopardy buffalo-meat export industry as well as dairy and leather producers. State governments are caving in to demands for farmers’ loans to be forgiven, that will bring short-term relief but make it harder for farmers to borrow in future. It could also add two percentage points to the fiscal deficit, nullifying the hard-won consolidation of recent years.
• If the economy falters, Modi may will try to maintain his popularity by stirring up communal tensions. That is how his BJP first propelled itself to government in the 1990's. 
• Modi himself was chief minister of Gujarat in 2002, when rioting for over 2 months, killed at least 1,000 people, most of them Muslims. To this day, he has never categorically condemned the massacre or apologized for failing to prevent it.
• Hindu nationalist thugs intimidate those who chide the government for straying from India’s secular tradition, or who advocate a less repressive approach to protests in Kashmir, India’s only state with a Muslim majority. 

As prime minister, Modi has been just as careful to court militant Hindus as jet-setting businessmen. Modi himself has become the object of a sycophantic personality cult. The prime minister may intend all this as a way to keep winning elections. But it is not hard to imagine it going disastrously wrong. Modi’s admirers paint him as the man who at last unleashed India’s potential. In fact, he may go down in history for fluffing India’s best shot at rapid, sustained development. And the worries about a still darker outcome are growing. Modi’s backers fear more erratic decision-making would be an expensive way to conceal an absence of reform. If he continues in this vein, Modi will leave India a little better off but otherwise not much different from how he found it.

My View:
Any reform will create initial disturbance and after stabilizing the fruits will be seen with passage of time. Aggressive reforms are necessary only when economy is in distress. Otherwise step by step reforms eliminating ills of the existing system is most preferred. Last year our economy was doing reasonable good with GDP growth of 7-8% better than China. Modi's senseless demonetization was utterly unwarranted which almost destroyed informal sector and agriculture. Even before it has shown any signs of recovery, adventuring GST (in mangled format) now, without adequate transition time will only complicate matters and its devastating effects are beyond imagination or prediction. His hurried nature of financial reforms indicate that his objective is to please FII's and World Bank for ratings upgrade rather than any sincerity towards poor people of the country and his deep desire to go down in history as 'the greatest reformer of India'. It is design of God that deep desires will never get fulfilled. History is testimony that never results would be as predicted. Commonsense tells me that when goings are good, it makes sense to adopt slow and seamless changes and poor and vulnerable are never subjected to any discomfort. Alas, if Modi has that much of serenity of mind, he wouldn't have become PM at all.

Inflation: Causes, Effects & Mitigation

• Inflation is the long term rise in the prices of goods and services due to currency devaluation. 
• The effects of inflation are both gradual and profound. 
• Inflation creeps up on us and as we continue our normal spending and consumption habits, the increase of consumer prices doesn’t seem to make a huge difference in our day to day finances.
• Food prices go up, transportation prices increase, petrol prices rise, and the cost of various other goods and services skyrocket over time. All of these factors impacts your long-term savings and ability to fund your retirement planning.
• Inflationary problems arise when it is not matched by a rise in income. If incomes do not increase along with the prices of goods, everyone’s purchasing power gets reduced, leading to a slowing or stagnant economy. 
• Excessive inflation can also wreak havoc on retirement savings as it reduces the purchasing power of the money that savers and investors have squirreled away.
• Inflation is caused by increased money supply outpacing economic growth.
• Ever since nations moved away from the gold standard, the value of money is determined by the amount of currency that is in circulation and the public’s perception of the value of that money. When more money is put into circulation at a rate higher than the economy’s growth rate, the value of money can fall because of the changing public perception of the value of the underlying currency. This devaluation will force prices to rise due to the fact that each unit of currency is now worth less.
• A macroeconomic way of looking at the negative effects of an increased money supply is that there will be more currency chasing the same amount of goods in an economy, which will lead to increased demand and therefore higher prices.
• High national debt is a bad thing actually drives inflation to higher levels over time. As a country’s debt increases, the government can either raise taxes or print more money to pay off the debt.
• A rise in taxes will force businesses to raise their prices. 
• Government printing more money will lead directly to an increase in the money supply, which will in turn lead to the devaluation of the currency and increased prices.
• As wages increase within an economic system in a growing economy people will have more money to spend on consumer goods. This increase in liquidity and demand for consumer goods results in an increase in demand for products and companies will raise prices to the level the consumer will bear in order to balance supply and demand.
• When companies are faced with increased input costs of raw materials or wages, they will preserve their profitability by passing this increased cost of production onto the consumer in the form of higher prices.
• Inflation can be made worse by our increasing exposure to foreign marketplaces. In global economy, exchange rates are one of the most important factors in determining our rate of inflation. When exchange rate suffers imports become expensive and exports cheaper.
• Economists argue that a healthy rate of inflation is considered to be approximately 2-3% per year. The goal is for inflation to outpace the growth of the underlying economy by a small amount per year. 
• A healthy rate of inflation is considered a positive because it results in increasing wages and corporate profitability and keeps capital flowing in a presumably growing economy. As long as things are moving in relative unison, inflation will not be detrimental.
• Small amounts of inflation encourages consumption which can further stimulate the economy and create more jobs.
• When it comes to long-term investments, sometimes spending money now can allow you to benefit from inflation down the road. Mortgage to purchase a home when you consider you can repay the mortgage down the line with inflated dollars that are worth less than they are now, then you are using inflation to your benefit. Other areas where you can take advantage of inflation include home improvement projects, capex for a business, or major investments.
• Commodities have an inherent worth that is resilient to inflation. Unlike money, commodities will always remain in demand and can act as an excellent hedge against inflation. In case purchasing commodities is a daunting task, you can consider commodity-based Exchange Traded Funds (ETFs) which offer the liquidity of stocks with the inflation hedging power of commodity investments. Just be careful of the problems of ETFs.
• Gold, silver, and other precious metals also have an inherent value that allows them to remain immune to inflation. In fact, gold used to be the preferred form of currency before the move to paper currency took place. With that said, even precious metals are liable to being a part of speculative bubbles.
• Real estate offers an inflationary hedge. Investing in real estate provides a real asset. Rental property can offer the landlord the option of increasing rent prices over time to keep pace with inflation. The added ability to sell the real assets in the open market for a return that generally keeps pace with or outstrips inflation. However we all know that real estate bubbles can and do exist.
• Equities have historically beat bonds because of the ability of corporations to pass price increases along to their consumers, resulting in higher income and returns for both the company and its investors.
• Large cap, dividend paying stocks have provided an inflation-adjusted 7% per year for long term investors. If you have the investment risk tolerance for the volatility and a time horizon of greater than 20 years until retirement, consider dividend-paying securities. Dividend stocks offer a hedge against inflation because dividends normally increase on an annual basis at a rate which outpaces that of inflation. 
• You are probably need a lot more money for retirement than you think you will. There are two ways to get to your new benchmark: Save more, or invest more aggressively. Saving more is probably the easiest and most proactive thing you can do to ensure your ability to fund a comfortable retirement. 
• Like it or not, inflation is real. Ignoring the effects that inflation can and will have on your long-term savings is probably one of the biggest mistakes that many investors make. Understand the detrimental causes and effects of inflation to make long-term decisions to mitigate the risks. Consider the above tips to overcome the devastating effects inflation can have on your future retirement.

My View:
In India, inflation is primarily caused by RBI printing more currency to meet the revenue deficits of central government arising due to tax evasion, black money & corruption. In 1947 USD and INR were at par and today in 2017 it is Rs.67 per USD. Some years inflation was in excess of 10% thus hurting wage earners and salaried class people most. Governments tend to believe that printing currency is a matter of right which is in other words is another worst from of indirect tax effecting essential commodities and poor as well. Inflation impoverishes savers and enriches borrowers, which is an absurd. National debt and external borrowings have crossed manageable levels and thus ratings reached near junk status and effecting foreign investments. Irrational taxation and poor monitoring systems has resulted in rich people maintaining their wealth in foreign countries illegally effecting our economy. Even though reforms are conceived 25 years ago, distortions, abuse and politics have resulted in benefits for only upper classes while others mostly rural habitants and uneducated remained poor. In the absence of political will & bureaucratic honesty and rampant greed, elimination of poverty and economic prosperity for all is a distant mirage. Worst, inflation can be viewed as government robbing away your wealth and earnings.

Modi transforms from reforms to welfarism

On Saturday Dec 31, 2016, it was expected that Modi will give details of success of demonetization and declare further big steps on eliminating black money & corruption. But he went in for some avuncular moralizing and then proceeded to announce a slew of welfarist measures, ostensibly as a balm for the pains that his government’s demonetization has caused thus confirming the disastrous failure of demonetization in achieving its stated objectives viz. elimination of black money, corruption, fake currency and terrorism financing.

Modi’s welfarism is a full U-turn from the promised “minimum government”, but the measures themselves would do little to address the ill-effects of demonetization but deceptively doing some help the citizens in their time of need. In all of these small sops one thing that stood out was that...nothing stood out. A plan to build more houses or a lower rate of tax for some small businesses were so banal that they were worthy of nothing. Few schemes were already part of the government’s policy matrix: the maternity benefit exists as a part of the National Food Security Act, and the RuPay card is hardly a new idea. Other than the optics of managing anger due to demonetization and making a show of the government caring, it is unclear how these small schemes will help India get over the shocks of demonetization.

It is clear that Modi has given up on his 'minimum government' programme. Sops is what the prime minister turns to as a crutch in times of need. The fact that Modi had to now pull out a provision of the UPA’s Food Security Act – which both the UPA and his government had denied to women – is telling. It is unlikely that these small sops will do anything to ease the pain of demonetization. As India steps into the new year, mitron, it’s clear that the pain will continue.

With mounting costs of demonetization for government & nation, loss of millions of livelihoods in informal sector resulting in 60% spurt in MNREGA beneficiries, banks financial condition precarious with unbearable NPA's, GDP & growth rate shrinking and other effects of demonetization will leave Modi without any money to do anything. On the contrary, taxes will go up, welfare expenditure will skyrocket, fiscal deficit gets widened from 3% to 3.5% or even 4% and above all crude oil prices are likely to double in coming months will result in runaway inflation leaving Modi and economic pundits stare helplessly. Worst is that our rating might get downgraded to 'junk status' signalling capital flight to foreign countries.

Nation will be paying dearly for Modi's quack advised economic adventures which are mainly aimed at striking headlines and disarming opposition political parties rather than doing any good to country.

It is necessary to restrict executive taking whimsical decisions like demonetization with wide ranging ramifications, in future, by strengthening institutions with much greater autonomy and teeth and reducing or minimizing discretionary decision making powers at all levels and replacing them with robust procedures. That is the only way our democracy can survive and ensure unity & integrity of India.