29 March 2015

Sunday Reads - How Indian cricketers should be treated if they were seen as having a bad day in office

  • Why Singapore banned chewing gum. (BBC)
  • How Indian cricketers should be treated if they were seen as having a bad day in office. (ET)
  • Creationists have questions. I have answers. (Slate)

28 March 2015

Book Excerpt: The Discovery of India

Jawaharlal Nehru wore many hats: freedom fighter, Fabian socialist, politician, chronicler of India's past and present, and prime minister.

Of his many works, two stand out: The Discovery of India and Glimpses of World History. 

The Discovery of India detailed a sweeping look at India's hoary past and an uncertain future under the British. While chronicling the story of India, Nehru dwells on an assortment of subjects - religion and its evolution over the centuries, culture and sub-cultures, development of science over the centuries, political philosophies, especially under British rule.

Glimpses of World History is actually built through letters that Nehru wrote to his daughter, Indira Priyadarshini (later Gandhi). The work lends a panoramic view of major global eventsfrom Greek and other ancient civilisations to the turn of the 20th centurythat have shaped the story of mankind. 

While Nehru was not a professional historian, his vast knowledge and mastery of the English language makes reading these two works a great joy.

The Discovery of India was also made into a popular television series, Bharat Ek Khoj.

Kindly ignore the pen markings (like underlines); these scans are taken from my personal copy, which I bought and read in 1990.

Title: The Discovery of India
Author: Jawaharlal Nehru
Publisher: OUP
Pages featured here: 74-76

Note: All copyrights/trademarks belong to the owners of the publication/author(s). It is not my intention to profit from their work. In fact, I just wish that the readers of this blog are encouraged to buy/read the works represented here.

22 March 2015

Sunday Reads - Christian versus Christian

  • The Nigerians bowled over by cricket. (BBC)
  • Cultivating the farmer. (New IE)
  • I feel like a stranger in my country. (IE) A christian responds to a christian who felt "he was a stranger in his country". (OPIndia). Hat tip: Ramnath Kanakadandi, my dear friend and colleague.

20 March 2015

Book Excerpt: Crusader or Conspirator?

The Coal Block Allocation Scam, or the CoalGate as it has come to be nicknamed, relates to the allocation of coal blocks to certain favored parties without following the bidding system. 

The Comptroller and Auditor-General of India (CAG) reported that this process of allocation of coal blocks without inviting open bidding led to a massive loss of Rs1,86,000 crore (Rupees One Lakh Eighty Six Thousand Crore) to the central and state governments. 

The UPA Government dismissed the huge loss figure as a figment of imagination.

Later,the Supreme Court struck down the allocation of 204 coal blocks.

The new central government, i.e., NDA under Narendra Modi, went in for e-bidding to bring in transparency in the allocation system. Till yesterday, the allocation of just 33 (out of 204) coal blocks has brought in nearly Rs2 lakh crore!! 

Tomorrow I shall share more on this scam; right now, let me share three pages from the work of P. C. Parakh, former secretary in the Ministry of Coal, Government of India. While a court had earlier absolved Mr Parakh of any wrong doing, a special CBI court has just issued summons to him.  Government of India. 

Title: Crusader or Conspirator?
Author: P. C. Parakh
Publisher: Manas
Pages featured here: 115-117

Note: All copyrights/trademarks belong to the owners of the publication/author(s). It is not my intention to profit from their work. In fact, I just wish that the readers of this blog are encouraged to buy/read the works represented here.

15 March 2015

Sunday Reads - Modi's trips + Don't expect Math to make sense

  • The advantages of losing memory. (BBC)
  • Don't expect Math to make sense. (NYT)
  • The great escape that changed Africa's future. (Guardian)
  • Modi's trips and China's islands. (Diplomat)

13 March 2015

Book Excerpt: Have Pen, Will Travel

A travelogue is personal in nature as it reflects the writer-traveler's perspectivea kind of personal takeon the world around her/him. I like travelogues as they lend us a peep into the mind of the writer.

M. J. Akbar's Have Pen, Will Travel is a brilliant, humorous collection of his observations as a globetrotter. This book was a gift from my dear friend, Sudharsan Ramalingam, a civil servant with the Government of India. 

M. J. Akbar is one of India's finest journalists; he worked as the Editor-in-Chief of Deccan Chronicle and Asian Age. He is also the author of some serious works, like The Shade of Swords and India: The Siege Within. A former Congress MP, currently he is a spokesperson of the BJP.

I am sure you will greatly enjoy this travelogue diary, which is in fact a series of short pieces written over several years. Go ahead, immerse yourself in this brilliant work. 

Title: Have Pen, Will Travel
Author: M. J. Akbar
Publisher: Lotus Roli
Pages featured here: 160-165

Note: All copyrights/trademarks belong to the owners of the publication/author(s). It is not my intention to profit from their work. In fact, I just wish that the readers of this blog are encouraged to buy/read the works represented here.

04 March 2015

The Explainer: Why a high Fiscal Deficit is Dangerous

In the third part of the Understanding the Budget Series, I had explained Fiscal Deficit. This post will focus on the adverse consequences of Fiscal Deficit.

Before that, let me address a pertinent question: Where does the Government of India borrow from?

The three major sources of borrowing for the government of India are: (a) RBI, (b) foreign lenders (sovereign governments and international organisations like IMF and World Bank), and (c) from the general public of this country.

Contrary to popular perception, the government borrows most from the general public, through the issue of bonds (pretty much like fixed deposits).

(Read The Explainer: Budget Terminology - Part I and Part II)

What are the adverse consequences of Fiscal Deficit?
A high and rising Fiscal Deficit is bad for the general state of the economy, trade balance, and currency exchange rate.

Rising interest rates

A high Fiscal Deficit would mean the government’s borrowings are high. When the government borrows money from the general public, it creates demand for money. 

Lending to government carries zero risk, as the government will not default on repayment. However, greater government borrowing would mean less money would be available for lending to industrial and other sectors of the economy. This would push up interest rates for the borrowers from the industry.

Reduced business & economic activity

Higher interest rates would add to overall cost of production, thereby increasing cost of operations. This in turn would render business activity, like increased production and expanding operations, unviable. Hence, a lot of businesspersons would then opt out of such economic activity as they no longer find it profitable.

Reduced income & employment generation

If due to higher interest rates businesspersons opt out of economic activity or close down plants, it would also reduce employment generation. This would in turn mean that the retrenched (those thrown out of jobs) and the unemployed do not earn income, thus reducing their purchasing power.

If purchasing power goes down, then their aggregate demand for goods and services would also go down. This in turn would also reduce industrial activity, thereby depressing overall economic scenario.

Lowers exchange rate & rises trade deficit

Sometimes the government of India would borrow from foreign sources. When the government is lent money, foreign exchange comes into the economy. This would increase the supply of the foreign currency, which in turn would be exchanged for the Indian rupee.

The rise in demand for the Indian currency would increase its value. Simply put, as foreign entities begin to exchange their currency for Indian rupee, the value of the Indian rupee will also increase.

For example, the exchange value of the Indian rupee for each U.S. dollar is Rs61. In this scenario, let’s say, when a foreign entity is exchanging its currency for Indian rupee in large volumes, the exchange value may fall to Rs59 per U.S. dollar.

This means that while earlier one U.S. dollar would have fetched Rs61, now it would fetch only Rs59. This would hurt exports and encourage imports. How?

As an an importer, in the past you were paying Rs61 per U.S dollar of import while now you are paying only Rs59. This means that your cost of operations would also go down.

However, if you are an exporter, then this would mean that you would earn less from your exports; like earlier you were earning Rs61 for U.S. dollar of export while now it is only Rs59!

If exports go down and imports go up, then the trade deficit will also widen, which in turn increases the Current Account Deficit. 

Also, high borrowings now would mean that the country's financial position becomes precarious as it piles higher debt and interest burden on future generations

In short, a high Fiscal Deficit is dangerous in every way possible: for general economic activity, employment generation, exchange rate, and trade balance.

02 March 2015

The Explainer: Understanding Fiscal Deficit

Continuing with the Explainers in the 'Understanding the Budget Series', this post will dwell on the idea of Fiscal Deficit, a crucial factor in ensuring a stable economic environment. 

(Read The Explainer: Budget Terminology - Part I and Part II)

What is Fiscal Deficit?
Fiscal Deficit is defined as the difference between the government's total expenditure and the total non-debt creating receipts.

What types of receipts are non-debt creating?
Revenue Receipts, Recoveries of Loans, and Other Receipts are all non-debt creating. This means that the government does not have to borrow to generate these sources of income.

Now, look at the accompanying table: Fiscal Deficit is numbered 22, Revenue Receipts is 1, Recoveries of Loans is 5 and Other Receipts is numbered 6.

(22) Fiscal Deficit = (16) Total Expenditure – [(1) Revenue receipts + (5) Recoveries of loans + (6) Other Receipts]

Revenue Receipts
 would include both tax and non-tax revenue of the Government of India (GoI).

What is tax revenue?
This refers to revenue that the GoI gets by way of collecting taxes, like Personal Income Tax, Corporate Tax (charged on incomes of companies), Central Sales Tax and Service Tax.

What is Non-tax revenue? 
This would include Stamp Duty and Dividends earned from Public Sector Units (PSUs). Dividend is the return on capital invested by the government in PSUs.

Sometimes the government of India receives money that it would have lent to some country/organisation in the past. When such money is received, it is recorded under the ‘Recoveries of Loans’ head.

When does Fiscal Deficit arise?
Fiscal Deficit arises when the government has expenditure higher than the revenue it generates. To bridge this expenditure-revenue deficit, the government resorts to borrowing. This borrowing is called Fiscal Deficit.

In short, fiscal Deficit is the total borrowing of the government of India to fund the allocations and expenditures listed in the Union Budget.

In the table above, the Revised Estimates for 2014-15 show a Fiscal Deficit of Rs5,12,628 crore. In other words, what this figure means is that the Government of India is borrowing this huge amount of money in 2014-15! Yes, you got it right: a total borrowing of mind-numbing Rs5.12 lakh crore in one year!

Fiscal Deficit is usually expressed in terms of percentage of the country’s Gross Domestic Product (GDP).

Now, go to the bottom of the table. It is mentioned that India’s GDP in 2014-15 will be Rs12653762 crore; yes, you read it right: Rs126 lakh crore!

Taking India’s GDP to be Rs12653762 crore in 2014-15, the Fiscal Deficit of Rs5.12 lakh crore works out to 4.1% of GDP.

So, to say that we are living way beyond our means would be an understatement. While the government has done well to stick to the targeted Fiscal Deficit (see Budget Estimates and Revised Estimates for 2014-15), one that is high could spell doom for the economic growth of the country.

The next post will focus on the adverse consequences of Fiscal Deficit.

01 March 2015

The Explainer: Budget Terminology - Part II

, I wrote the first p
art in the 'Understanding the Budget' Series under The Explainer Series.

(Read: The Explainer: Budget Terminology - Part I)

In today's article, I am going to address some very important aspects of the Union Budget.

What does the Budget consist of?

Take a look at the table graphic below. This document titled, Budget at a Glance, is the best document to understand the components of the various types of figures in the Budget. 

The Union Budget 2015-16 consists of the following:
(a)   Actuals for 2013-14
(b)   Budget Estimates for 2014-15
(c)   Revised Estimates for 2014-15
(d)   Budget Estimates for 2015-16

The Actuals for 2013-14 may be represented as such but they STILL would be PROVISIONAL only (see notes below the table in the above graphic). This means that these figures are NOT the final figures for 2013-14 but are subject to further revision. In fact, the final figures for 2013-14 will only be available toward the end of Financial Year 2015-16 (or Fiscal Year ’16).

Budget Estimates (BE) relate to the figures which the Finance Minister set out in his Budget Speech last year (i.e., on 28 February 2014) for the Financial Year 2014-15.

However, all figures – related to revenue collection, expenditure, other allocations – are subject to change. These numbers are mere ESTIMATES and not actuals. As the year progresses, such figures may sometimes need to be revised. For example, if there is low industrial and agricultural activity (meaning lower economic output), tax collections may dip. This, in turn, will reduce the government’s Revenue Receipts.

In such case, the Government may revise the Budget Estimates (made in the Budget). Such altered figures are labeled Revised Estimates (RE). These RE are listed in the third column.

In the fourth and last column, you will find Budget Estimates for the coming Financial Year 2015-16. These figures reflect the various estimates made by the Government in terms of Receipts (including tax collections) and Expenditures (including interest payments and salary payments to government employees).

What are the different types of accounts listed in the Budget?
There are three types of accounts listed in the Budget. They are:
(a)   Consolidated Fund of India;
(b)   Contingency Fund of India, and
(c)   Public Accounts.

What is the Consolidated Fund of India?
This is the most important account maintained by the Government of India. The Consolidated Fund of India contains all the revenues (tax and non-tax revenues) earned and all the expenditures incurred by the Government of India.

No money from the Consolidated Fund of India can be spent by the Government without approval of the Parliament of India.

What is the Contingency Fund of India?
Contingency means ‘unforeseen’ or ‘emergency’. As mentioned above, all withdrawals  from the Consolidated Fund of India require prior approval of the Parliament. 

However, sometimes there are emergency expenses for which the Government may not wait for the Parliament’s approval; like, expenses incurred to tackle a devastating flood/earthquake.

In such cases, the Government of India will withdraw funds from the Contingency Fund of India. Once the expense is met, the Government may seek approval of the Parliament for such withdrawal. In short, the Parliament’s approval comes post-facto (i.e., after the expense has been made).

However, after the Parliament approves such expense, an equal amount is withdrawn from the Consolidated Fund of India to be put back into the Contingency Fund of India.

What are Public Accounts?
Public Accounts hold money that does not belong to the Government of India. Such accounts include the Employees Provident Fund and Small Savings Scheme. This money belongs to the general public but is held in Government’s trust.

Whenever withdrawals are made from such accounts, the Government pays out the amounts without the Parliament’s approval.

I hope this was easy to understand. Please share your feedback.