Mission accomplished by the UPA Government: good for ya, p. chidambaram!

apr 21st, 2008

p chidambaram has done it again! what a guy! he inherited a fast-growing economy, and lo and behold, just like he did once before, he has performed his magic and reduced growth to the Nehruvian Rate of Growth of 2-3%! all hail the great harvard man! all hail the nehru dynasty!

perhaps we should all do some shorting of the sensex and the realty companies, as the real-estate bubble may well burst in the next year or two. by 2010, we are likely to be back to the Nehruvian Rate of Growth.

karat and yechuri, along with raoul and arjun, must be deliriously happy. china wins again. and manmohan has given nepal away (cf. jawaharlal giving tibet away to china); all that remains is to give arunachal pradesh away next (cf. jawaharlal's give-away of kashmir). and the chinese-funded maoists are flexing their muscles in 180 or india's districts. lovely indeed.

manmohan has to be the greatest prime minister in kkkangress history. he is so good at emulating the kkk and imposing apartheid on hindus, in addition to his economic and dhimmi achievements.

the person who wrote this is chief economist of a major investment bank. he usually has a pretty good feel for what's going on.

---------- Forwarded message ----------
From: An
To:

Fully agree with Swaminathan Aiyar. It causes a lot of anguish and
helplessness and frustration. This government has effectively run
India aground. It may not be evident now but would be evident in two
to three years.

These fiscal deficits are deadweight costs for they do not lead to
creation of productive assets, by and large.

On most economic indicators, we were about 5 to 10 years behind China.
The objective of this UPA government/alliance was to push it back to
20 years. They have succeeded.

The problem in our country is that the number of people who care about
the nation are vastly outnumbered by the narrow, small interest driven
groups in politics and in other domains.

I fervently wish I am wrong: I predict very difficult times in the
next 3-5 years. Lost growth would be significant. It is not impossible
by any means but a lot of sagacity and statesmanship would be required
to turn the resulting stagnation into an opportunity for
re-generation.

That is where the fear of a more disparate coalition than in 2004 looms large.

Regards,
An

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In yesterday's Times of India:

SWAMINOMICS
Fiscal deficit back to record level?

SWAMINATHAN S ANKLESARIA AIYAR

Terrified that surging food prices will cause it to lose the coming
state elections, the government has come out with an anti-inflation
package banning most agricultural exports and slashing import duties
on edible oil. Yet the biggest anti-inflation measure is hardly known
or debated, although it will have serious consequences.

Domestic prices of fertilizers, petroleum products and rationed grain
have been frozen by the government although global prices are
skyrocketing. This price freeze will hugely raise implicit and
explicit government subsidies. This could raise the true fiscal
deficit (as distinct from budgetary fiction) of the Centre and states
to the 10% level of 1990-91, when India went bust.

Finance Minister Chidambaram said triumphantly in his budget speech
that his fiscal deficit in 2008-09 would fall to 2.5% of GDP, below
the 3% target set in the Fiscal Responsibility and Budget Management
Act. The fiscal deficit of the states may be another 2.5%, making a
combined 5% for the Centre and states together. So, what's the
problem?

First, implementing the Pay Commission award will probably increase
the fiscal deficit of the Centre and states combined by 1% of GDP.
More important, skyrocketing world prices mean that hidden subsidies
for petroleum, fertilizers and food may shoot up by another 4-5% of
GDP. That could take the true combined fiscal deficit to 10% of GDP.

In 2007-08, price controls on petrol, diesel, kerosene and LPG
resulted in under-recoveries of Rs 78,000 for the oil marketing
companies. This subsidy was funded partly by the ONGC, partly by the
oil marketing companies, and partly by oil bonds from the government.

Chidambaram claims that the oil bonds alone constitute a fiscal
liability. That's fiscal fiction. The losses absorbed by the ONGC and
oil marketing companies are really government liabilities too. These
liabilities reduce the dividends declared by these companies, and
reduce their cash available for new projects. To that extent, the
companies have to borrow more for the same projects. The shortfall in
dividends and additional borrowing of the oil companies are part of
the true fiscal deficit.

Besides, oil prices have just hit a record $115/barrel. By contrast,
the average prices in the four quarters of 2007 were $58, $65, $75.5
and $90.8/barrel. If oil price trends continue, under-recoveries of
the oil marketing companies could soar this year to Rs 150,000 crore,
or 3% of GDP.

The fertiliser scene is worse. The world price of urea, which was only
$175/tonne in 2004, rose to $288 in April 2007, and $415 in early
April 2008. China has just imposed a 100% export duty on urea and 135%
export duty on diammonium phosphate, effectively stopping all exports.
This will reduce globally traded supply of these two fertilisers by
almost 20%. Russia, another major fertiliser exporter, has also
announced a modest increase in export duty. Panic has swept through
the world market. Ukraine reportedly wants a record $500/tonne for its
next export tender.

Diammonium phosphate (DAP) shot up from $252/tonne in early 2007 to
$752 in January 2008, and is now almost $1,300/tonne.The price of
potassium chloride, a potassic fertilizer, is up from $270/tonne last
year to $620/tonne.

The fertiliser ministry says the fertilizer subsidy required last year
was Rs 47,000 crore, of which it got only Rs 22,500 crore from the
government in cash and bonds. For 2008-09, the budget provides Rs
30,890 crore, but the ministry claimed in early April that Rs 90,000
crore was needed. After the Chinese export ban and spike in world
prices, the subsidy required may be Rs 150,000 crore (another 3% of
GDP).

India imported 1.8 million tonnes of wheat in 2007 at prices 50%
higher than the domestic procurement price. It may have to import more
this year if procurement falls below target. The domestic procurement
price is also up 11%. The government is reluctant to raise the sale
price at ration shops, in which case the food subsidy will shoot up.

Prices of oil, food and fertilisers look like staying high. The
government will either have to raise prices sharply — and risk defeat
in the state elections — or let the true fiscal deficit rise by
another 4-6% of GDP. It will probably choose the latter course.

Borrowing for productive investment is justified. But borrowing for
unproductive spending — like subsidies — is bad policy, and is
unsustainable. The revenue deficit — borrowing for unproductive
routine spending — was mandated to fall to zero in the FRBM Act. Alas,
the huge borrowing for subsidies (by the Food Corporation, Fertilizer
Corporation and government oil companies) constitutes a revenue
deficit by other means.

This will have exactly the same impact on the economy as a massive
rise in the fiscal deficit. Hundreds of thousands of crores of bank
funds will be diverted from productive purposes to subsidies.
Companies will find that credit is not available, except at high
interest rates. Economic growth, which is already being slowed by a
global recession, will slow down further. Difficult times lie ahead.