C. P. Chandrasekhar’s Blog

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…

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…

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…

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…

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…

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…

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…

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…

While forecasters grapple with predictions on the likely contraction in the world’s leading economies, big finance, especially in the US, seems to be prematurely preparing for its next celebration. Recall that while the post-2008 Great Recession was precipitated by the financial collapse triggered by unbridled speculation in financial markets, the subsequent ‘recovery’ from the crisis saved and rewarded finance, but left the real economy limping and workers and the middle class poorer and often homeless. As the US and the rest of the world got accustomed to a new normal of slower growth, financial companies returned to profit, speculative agents…

In a trend which sees equity markets in the “emerging economies” imitate stock markets in the US, the MSCI Emerging Market Index that collapsed over the month ending 23 March, from more than 1,100 to just above 750 (Chart 1), has since been on the rise, touching 930 by the end of May. An emerging market (EM) like India, which has been a favoured destination for foreign portfolio investors, has shown exactly similar trends (Chart 2). Over the month ending 23 March, the S&P sensitive index (SENSEX) capturing trends in the Bombay Stock Exchange had fallen sharply from more than…