Praxeology: My Reflexions on India

The Finance Minister of India Mr. Arun Jaitley at the National Conference on Public Procurement & Competition Law recently said that, We wanted multiple players because they would ensure the largest consumer interest. But there can be several other impacts. Excessive competition, at times, can result in pricing of a nature that that sector of the economy can itself face stress. Because everybody then tends to follow the leader, and therefore what do you do in such a situation?” “And these are all challenges that will emerge as the economy moves further and expands further. (emphasize added) Is this supposed “excessive competition” a problem? Should Mr. finance minister worry about the stressed entrepreneurs? Let us see. Market and its competition means the entrepreneurs are constantly striving to fulfill the most urgent wants of the consumers. And for that they are constantly innovating about new production technologies and new products. Competition makes sure that...

The RBI vs. Government battle is intensifying. The Narendra Modi government intends to keep pressing demands for the country’s central bank to relax lending curbs and hand over surplus reserves, amounting to whopping 3.6 lakh crore , even if it risks provoking a resignation by the bank’s governor. After the debacle of demonetization and GST, the Modi government is struggling to handle the economy of India. Modi’s pet projects require huge sums of resources, which only RBI can provide. It is thus important for the Modi government, who is desperate to win the reelection next year, to gain full control of the RBI. This battle has brought some important issues in open that I want to discuss here. Who owns the RBI? RBI’s deputy governor Viral Acharya started this war by saying that undermining central bank independence could be “potentially catastrophic” . The finance minister of India then fired back and since then the pressure is mounting on RBI. In all these back and ...

The Indian government has supposedly deregulated the determination of prices of petroleum products like petrol and diesel in India. Every time prices of these two products go up , the government plays this card of deregulation to answer the critiques e.g., recently the Modi government reduced the excise duty on petrol and diesel by 1.5 rupees to lower the daily rising prices of these two products in the shadow of coming 2019 assembly election, and when the share prices of oil companies started declining in the aftermath of this move, the ministers are now reassuring the market participants that the government would not go back to regulating fuel prices . How much truth is there in this claim of successive governments that the prices of petrol and diesel are deregulated in India and that they are determined by the market forces of demand and supply? To understand this we need to understand how market determines prices of various economic goods. A market is an organ...

The Modi government is embroiled in an alleged corruption case of  Rafale Jet deal with the French government. Opposition parties are now gunning for the resignation of prime minster Narendra Modi. They have accused him of personally influencing and altering the deal, which was originally put in place by the former UPA government, to benefit his crony Anil Ambani. The former French president Francois Hollande has now confirmed that it was the Indian government who didn’t give him any choice to choose their Indian partner, and only suggested Anil Ambani’s Reliance company name. We can’t and don’t want to investigate this alleged scam here. May be Modi did influence the deal, but that is not our concern here where we want to discuss the nature and cause of corruption. Nature of Corruption WordWeb online dictionary defines corruption as Lack of integrity or honesty (especially susceptibility to bribery); use of a position of trust for dishonest gain . One major...

IL&FS insolvency is rocking the Indian stock markets right now. The situation is so grim that the Modi government has now “ nationalized ” the company! They have bailed out a private limited company by using public money. The news is coming out that, as usual, LIC and state bank of India (SBI) are being coerced by the Modi government to bailout this beleaguered company. The government has bailed out IL&FS, but it is just a ‘canary in the coal mine’. This is the domino whose fall will start the domino effect. There are many such companies whose books are leveraged beyond limits. As the bubble bursts, all the mass insolvencies will come to surface one after another. The whole Indian economy is like a giant castle standing on a quicksand of artificial growth generated by these companies. Artificial because such growth can’t be sustained for long. These activities have to be unwind one day. Modi government has bailed out IL&FS, but how many more such companies...

A mud-slinging exercise is going on between the former Congress and present BJP government about who is responsible for the mounting non-performing assets (bad loans) problem. Political parties, as usual, are blaming each other for this mess. Former RBI governor Dr. Raghuram Rajan implicated bankers themselves for this problem. In a note on bank non-performing assets (NPAs) prepared at the request of Murli Manohar Joshi, Chairman of the Parliament Estimates Committee, Dr. Rajan said The truth is bankers, promoters, and circumstances create the bad loan problem…The RBI is primarily a referee, not a player in the process of commercial lending . He also said, the government should refrain from setting ambitious credit targets or from waiving loans . He also warned that the next crisis in India’s banking sector could come from loans given to the unorganised micro and small businesses, called MUDRA loans, and credit extended through the Kisan credit card. How much ...

The recent historic flooding in Kerala killed hundreds of people and damaged billions of rupees worth of property while displacing more than million people. Keralites are going to need some time to get out of this shock. This flood once again raised many important questions like who is responsible for this flood? Is this a natural or a man-made disaster? Why so many lives were lost? Why the danger was not averted? etc. Some people will say that this is a natural disaster where heavy rains resulted in flooding. Some will blame man-made climate change for this deluge. Some will say the mad rush of government for so-called “development” is responsible because in the name of development the state is destroying our ecology. There is a grain of truth in all these. It is a matter of fact that the government made a mistake of not releasing water from more than 30 dam earlier in phase manner when they knew water level will rise in future due to heavy rain forecasts. And the...