Monday, December 30, 2013

Can Lokpal Bill and AAP Remove Corruption?

The Indian government passed the popular anti-corruption Lokpal bill recently, and the anti-corruption crusader Arvind Kejriwal and his Aam Aadmi Party is now in power in New Delhi. Many people are thinking that these two developments in the Indian polity will now help remove corruption. But, is it so? Can Kejriwal and his Aam Aadmi Party fulfill its election promises? Can they fulfill everyone's demands? I answer these questions in my latest economic report below.



Saturday, December 21, 2013

RBI is Toying with Peoples' Lives

Last Wednesday the Indian central bank RBI, according to media language, surprised the markets by keeping its policy rates unchanged despite growing inflationary pressure in the Indian economy. Both WPI (Wholesale Price Index) and CPI (Consumer Price Index) are rising again; RBI's tone was also mostly anti-inflationary before the policy announcement, but they still kept the rates unchanged.

As I am saying since quite long time, to see the impact of RBI's policies on the economy, we should not focus on what RBI is saying, but what they are actually doing; We must focus on their actions. On one side when they are talking about taking a tough stance against inflation, they actually continue to inflate! Raghuram Rajan is trying to manage the inflation expectations while at the same time creating more inflation. This happens because his mainstream economic theory defines inflation as a persistent increase in the general price level. Rise in price is not inflation, but an effect of inflation, as I have said many times in the past. Increase in the supply of money and credit is inflation. By keeping the rates on hold, Rajan continues to inflate the money supply. And this inflation continues to erode the purchasing power of rupee, which gets reflected into the higher prices of various economic goods like food or energy items.

His post policy conference talk with the media also shows how he is toying with citizens' lives. He is trying to play god by trying to "calibrate" the monetary policy to micromanage the inflation rate. Here's what he said:
Thank you. Let me start with a short statement. Good Morning. Recent readings suggest that headline inflation, both retail and wholesale have increased, mainly but not exclusively on account of food prices. While core CPI and core Wholesale Price Index (WPI), that is, inflation excluding food and fuel have been stable, despite a steady and necessary increase in government administered prices towards market levels, the high level of core CPI inflation leaves no room for complacency. There is, however, reason to wait before determining the course of monetary policy. There are indications that vegetable prices may be turning down sharply, although intermediaries could impede the full pass-through into lower retail inflation. Our own current readings from the metros suggest a significant fall in vegetable prices, both at the wholesale and retail level which gives us reason to make this statement. In addition, the disinflationary impact of recent exchange rate stability should play out into prices. Finally, the negative output gap, including the recent observed slowdown in services growth, as well as the lagged effects of effective monetary tightening since July, should help contain inflation.

This policy decision, which is to stay on hold, is a close one. Current inflation is too high and I repeat, is too high. However, there are wide bands of uncertainties surrounding the short term path of inflation from its high current levels. Given the weak state of the economy, the inadvisability of overly reactive policy action, as well as the long lags with which monetary policy works, there is merit to wait for more data so that uncertainty can be reduced before we act.

There are obvious risks to waiting for more data including the possibility that tapering of quantitative easing by the US Fed may disrupt external markets and that the Reserve Bank may be perceived to be soft on inflation. Let me assure you that the Reserve Bank will be vigilant. Even though the Reserve Bank has maintained status quo today, it can help guide market expectations through a clearer description of its policy reaction function which is: if the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, note that there is an “or” here, which means both conditions have to be met, the Reserve Bank will act including on off policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable growth takes hold. The Reserve Bank’s policy action on those dates will be appropriately calibrated.
This is all impossible. One man sitting in RBI office can never really determine the market rate of interest, inflation rate, rupee exchange rate or any other such market price. Price determination can take place only in the free market. Only the free market forces of demand and supply can truly determine any exchange ratio i.e., price. Rajan thinks that the Indian economy is some kind of a mechanical machine, which he can easily "fine tune"!  He doesn't understand that an economy is no machine, and his fine tuning is hurting billions of people around the country. His micromanagement of the economy and calibration of monetary policy is creating inflation, boom-bust cycles, unemployment, income inequality etc., etc., economic, social and political problems. The more he will try to calibrate this machine, the more he will screw peoples' lives. Central planning social engineering will always result into disaster. RBI is a central planning monetary authority, and it is wrecking our economy.

Raghuram Rajan and other RBI governors can talk and act so irresponsibly like this because they are not going to be punished for their crime of destroying millions of peoples' lives via their inflationary monetary policy. They will face no justice; they will never be convicted; they will never face any jail time. In fact, after leaving their governor positions, they will be given highest accolades by the state officials; they will get lucrative jobs from statist institutions; they will be given honorary degrees from universities; they will become future Bharat Ratnas and what not. This is all disgusting. If these governors are held accountable for their actions, then, I am sure, none of them will dare to join RBI. But, I know no such thing is going to happen. Ultimately it is the public opinion that will decide the fate of RBI. Ultimately it is the free market forces which will end the money monopoly of central banks around the world. When people will understand the true evil nature of central banks, they will demand its demise. As long as people are unaware of central banking institution's true nature, we will have to suffer at the hands of social engineers like Raghuram Rajan.    

Monday, December 9, 2013

Indian Assembly Election Analysis

So, the so-called semi-final round of the 2014 Lok Sabha election finally ended yesterday. The results are out for all five state assembly elections. What do these results indicate? Following is my brief analysis.

First, the defeat of Congress party in Rajashthan and Delhi constituencies shows how frustrated voters were against the incumbent rulers in these states. The ruling UPA coalition, lead by the Congress party, is involved into myriad of political corruption scandals since last few years, which possibly have angered voters against its rule in these states. The sign of this anger was visible in Delhi election where anti-corruption crusader Arvind Kejriwal's AAP (Aam Aadmi Party) won total 28 seats in its debut itself. The rise of AAP is now posing a big political threat to both Congress and BJP. What was interesting in Delhi election is, that there was a three way fight between Congress, BJP and AAP, and most of the seats lost by Congress were won by AAP, and not by BJP. This is important because it hints at the fact that the hyped Modi Magic didn't really work. If Modi magic was working, then, BJP should've snatched all seats from Congress. Instead people voted for AAP, and neither for Congress nor for BJP. It seems, people have started realizing that both BJP and Congress are corrupt. Frustrated people were looking for an alternative, and, so far, they have found that alternative, at least in Delhi, in AAP. Another indirect evidence of failure of hyped Modi magic is seen in Chhattishgarh election where the ruling BJP government barely held onto power against Congress, which won more seats in this election than in last. And today Congress won Mizoram elections convincingly.

Looking at all these drama, it would've been interesting if AAP contested in Rajashthan, M.P., Chhattishgarh and all other state assembly elections too. The hyped Modi magic would've been truly tested in that case. But as I said above, these election results are, as usual, showing that people are more concerned about their local issues. Local factors mostly play a big role in India where the country is so diverse. The myth of one nation called India is perpetrated by the politicians themselves. People are busy with their own life instead of worrying for the false cause of Indian nation. If they don't get cheap onions in their locality, then, they are going to throw the rulers out like in Delhi.

And re AAP, the hope which people are having from these so-called common men is going to result into disillusionment and disappointment in the end because it is easy to promise to remove political corruption, but it is not that easy to actually do it! Arvind Kejriwal is already worrying about making mistakes; he is already fearing from the responsibility which people are putting on his shoulders. To remove political corruption, AAP will have to get into power and start dismantling one bureaucratic department after another. Kejriwal will have to start shrinking the government. Can he do that? I think not. His election manifesto said no such things. In fact, like BJP and Congress, AAP was also promising 'cheap electricity' and 'free water' to everyone! This policy is not at all different from BJP and Congress. Without a sound understanding of the laws of economics (and other natural laws), it is impossible to do good for this country. AAP is equally clueless about these laws. People voted for them because they were looking for some alternative. The thought that election and voting give true choice to people is an illusion. Hapless people are forced to vote. They don't have any other option of changing their ill fate; they can only vote after every few years to try and alter their bad condition. There will be a true choice when people will be allowed to peacefully secede from the Indian State. Election is just an excuse and ritual of democratic religion to keep people under the yoke of government rule.

In the end, in all these elections the final result is certain: Politicians (no matter from which party) will win, and people will lose, as usual!!!