Branding Debt as a Chinese Weapon C. P. Chandrasekhar
Declared the leading threat to global stability by the United States and a group of its allies, China has been accused of transgressions varying from stealing hi-tech secrets, spying, and interfering in domestic politics abroad to spreading viruses. Sometimes, even normal measures adopted by countries as part of their international economic relations are presented as crimes when practised by China. A case in point is lending abroad, especially to developing countries, including the poorest among them. China, of course, deploys its hard currency surpluses in multiple forms in a wide range of countries, including the US, with a small share…
Forex Reserves: No cause for celebration C. P. Chandrasekhar
Multiple indicators reveal that the pre-pandemic deceleration in growth segued into a deep recession that persists six months after the first reported Covid-19 case. But official optimism hasn’t waned. Some spokespersons promise a V-shaped recovery. Others clutch at every straw in sight. One such is evidence of record and rising levels of foreign exchange reserves (gold, foreign currency assets and SDR holdings) with the Reserve Bank of India (RBI). On August 7, 2020, total reserves stood at $538.2 billion, which, even if the economy were not in the midst of the ongoing recession, would be adequate to cover almost a…
The Great GST Impasse Threatens India’s Federal Structure C. P. Chandrasekhar
At least two state finance ministers have declared it a great betrayal. Many others have strongly protested. But the Central government under Prime Minister Narendra Modi and finance minister Nirmala Sitharaman has decided to go ahead with its decision to stop the transfer of compensation to the states to cover the shortfall in state-level Good and Services Tax (GST) revenues relative to a projection that those revenues would grow at 14% per annum from its base level in 2015-16. It was that projection and the promise of compensation which underpinned the agreement to go ahead with the GST regime in…
Finance and the economy: Fixing the disconnect C. P. Chandrasekhar and Jayati Ghosh
India’s stock markets have revived and touched inexplicable peaks even while the real economy braces for what may be the largest contraction in post-Independence economic history. Having collapsed from a level in excess of 40000 in late February, when the Covid-19 pandemic struck, to less than 26000 in late-March, the S&P BSE Sensex has climbed back to well above 38000. Current stock market valuations of most firms can only be justified by expectations of extraordinary increases in sales and profits that, given the context, require not just a “V-shaped recovery” but a subsequent boom in growth. Even the optimists predicting…
GST under Strain C. P. Chandrasekhar
The Finance Minister of Kerala, Thomas Isaac, has declared it a “betrayal” of trust. He was commenting on the statement reportedly made at a meeting of the Parliamentary Standing Committee on Finance by Union Finance Secretary Ajay Bhushan Pandey, that the Centre, in financial year 2020-21, would not fully compensate the states for any shortfall in revenues from Goods and Services Taxes. The shortfall was to be computed relative to a trajectory where state revenues grew by at least 14 per cent every year, starting from a base value computed for 2015-16. Clearly, that was the revenue growth the GST…
Asia’s Covid-19 Response and the Road to a Green Recovery C. P. Chandrasekhar
Across the world, one consequence of the coronacrisis has been a shift away from fiscal conservatism, with diminishing concern for austerity or even fiscal prudence. Victor Gaspar and Gita Gopinath of the IMF estimate that the total value of the global fiscal policy response to the pandemic and its fallout stood at close to USD 11 trillion by early July 2020. As a consequence, public debt to GDP ratios have crossed 100% in 25 advanced economies (only surpassed during World War II) and risen to a historic high of more than 60% in 27 emerging market economies. The pressure on governments…
Can India stay with GST? C. P. Chandrasekhar and Jayati Ghosh
July 2020 marks the completion of three years since the launch of the Good and Services Tax regime. That is long enough to allow us to take stock of how well the new tax regime is performing. If the regime is still beset with “teething troubles” the conclusion must be that there are structural flaws in its character and design that make effective implementation near impossible. If such flaws are not undermining its effectiveness, the regime should show signs of delivering the results it was explicitly or implicitly expected to yield. An annual statistical report recently released by the Goods…
Can the Economic Lever Nudge China? C. P. Chandrasekhar
In a surprise move, the Indian government has decided to ban the use of 59 Chinese apps, some of which like Tik-Tok and UC browser are extremely popular in India’s consumer digital space. According to The Wall Street Journal, quoting estimates made by Sensor Tower, the 59 banned apps were the target of 4.9 billion downloads in India since January 2014, including 750 million so far in 2020. The move was widely interpreted as being part of India’s response to the disturbing developments along its border with China, and as a means to pressure China, even as India strengthens its…
FTAs and the Race to the Bottom C. P. Chandrasekhar
The competition among Asian countries to win a slice of export markets currently controlled by China is intensifying. In a recent development, Vietnam has finally ratified a free trade agreement with the EU, under which more than 70 per cent of Vietnam’s exports to the EU and 65 per cent of the EU’s exports to Vietnam would be rendered duty free as of August when the agreement takes effect. Of the remaining goods, tariffs on items that would add up to 99 per cent of the two-way trade would be phased out by the EU over seven years and by…
The Fisc and the Economy C. P. Chandrasekhar
India’s central government was faced with a fiscal crisis even prior to the Covid-induced lockdown. Provisional estimates from the Controller General of Accounts of actual revenues collected in financial year 2019-20, or the fiscal year that ended March 2020, point to an erosion of revenue receipts of crisis proportions. As compared with the original budget estimate of Rs. 19.6 lakh crore, and a revised estimate (or late-in-year projection) of a lower Rs. 18.5 lakh crore, actual revenue receipts are currently placed at just Rs. 16.8 lakh crore. This implies that the actual figure is more than 14 per cent short…