Thread by @Raminations

Sarted reading Arvind Subramanian's Of Counsel: The Challenges of The Modi-Jaitley Economy:

Quite interesting book for such a lacklustre CEA in action. May be certain people are good only for lecture and teaching and not to be used in real life action?

Interestingly he blames the ills of governance on 4Cs, truly following Modi, perhaps:

1.Courts
2.CAG
3.CVC
4.CBI

:-)

CEA writes NPA situation occurred because a series of RBI initiatives allowed a form of "extend and pretend, postponing repayments to a day of reckoning far in the future.It was only in 2015, two years into Rajan's tenure that the RBI started pushig banks....

CEA writes Growth accelerated in the first two years of Modi Govt.Only after AQR made magnitude of problems public growth decelrated and Govt realized the urgency...it reacted by passing the new bankruptcy law-a truly major achievement..
What was Rajan's role as CEA-RBI guv then?

In Mar 2015 RBI was forecasting that even under severe stress scenario(read..all hell breaks loose)-NPA at most reach about 4.5lakh crores when Ashish Gupta was forecasting 12 lakh crores.

What was RBI doing here? Why was it so clueless under FM turned PM and IMF wizard Rajan?

CEA writes RBI sadly missed a Draghi-esque "do whatever it takes" demarche of determination, WHICH COULD HAVE POTENTIALLY CHANGED THE ENTIRE DYNAMIC around....

Wow! He is indicting Rajan straight away!

He observes again:

hether RBI has too much capital (yes,yes,yes, it does and enough to fix the banks), on which I had some interesting exchanges with Rajan.

For the record:
I continue to debate with my wife (she is an Indian Economics Service-IES-Rank holder) and we differ! :-)

In the initial presentation ex CEA talks about Prof.Karthik Muralidharan, an eminent young economics Prof from UC San Diego, whom I had the occasion to meet personally, thanks to my wife(Karthik is my wife's IITM collegue's son) and had attended a couple of his lecture sessions

Prof.Karthik has presented about the educational models in India in these lectures.

I was impressed by some of the observations.One was his question: Why do we need, for a rural school, teaching for Pre/LKG and UKG staff having Masters degrees? Really thoughtful of him

What we need is someone who can imbibe a sense of discipline and communicate in the local language with children. Not some one who scares them off from schools. That's really some perspective.

Really a pertinent point stated by AS and Karthik:

India oesn't follow the Western world or China in Infra building.

For us investment in "redistribution' comes first and then "investment in public goods'(roads, railways, bridges)

For Western world and China it's the reverse

It's so much easier said than done when a vast middle class clamours for Airports, Bullet Trains and Hyperloop transportation,while more than 20% of population suffers from lack of food and sanitation.
Despite Modi's socialism, it's quite understandable he took different priority

Speaking of RBI he says for failure to grasp the seriousness of NPA problem and not handling NBFCs properly for prolonged period of time RBI must be held accountable.

If RBI can't handle supervisory actions it must outsource to a bee agency explicitly created and mandated for this. Recapitalization must be done by RBI and it has required capital and sufficient reasons for the same.

Eight steps leading to solving NPA
1. It's not just about banks.Its about companies that borrowed
2. It's not a morality play but economic one.
3. Stressed debt is concentrated in large companies. Between 2007 to2014 Essar,Adani Power, GAME, Lancor, JSPL and such big unit's..

.. being top ten, grew their debt by five fold to 7.5lacs crores.
4. Many of them unviable and require write down of debts
5. Existing schemes are unviable for these companies to resolve issues.
6. No new mechanism works
7. Delays cost enormously.
8. Centralised resolution needed

Next topic is Central bank reserves and Government's Capital requirements.

Says From Norway's 40% of Total Assets to US,UK, China's negligible percentage holdings we have varied figures with a median of 8 4%. RBI holds nearly 28% which slants it towards the higher end

Based on these figures RBI holds an excess capital of 7 lac crores. Based however on the basis of ECF involving VAR analysis this figure works out to 4.5 lacs crores

Many of the objections to this claim of excess capital were dealt with in Malegam committee report which suggested transfer of excess. The figures of CEA are far less than Malegam committee suggestions

Conclusion in this area
When making this suggestion objections are all over from current and former eminent RBI officials as they argue all capital us needed. AS argues it's wrong and as Margaret Thatcher used to say, "One man and the Truth us a majority"😀

Nice summing up

And the whole discussion ends with an imaginary pronouncement of a verdict by 2 Central bank observers with substantial standing Ben and Draghi:
"This is such a no-brainer.
Obviously you should do whatever it takes"

Tomorrow will take up Demonetization and GST

Now to Demonetization:

As says :
If subsidies are a highly inefficient way of transferring resources TO the poor;
Demonetization seemed a highly inefficient way of taking away FROM rich

The chapter on Demon is quite unconvincing since AS finds no explanation for questions raised by him in modern day economics.
Also, he says his hypothesis goes only a small way towards explaining the puzzle.
He observes, it is a stunning picture, the close movement of GDP&Cash

Level of Cash vs GDP index was at 120 prior to Demon which dropped down to near 60(almost half) and then recovered ver next 2 years towards pre Demon levels.

Does this mean GDP numbers as constructed earlier was wrong or currency numbers were wrong?

A possibility, he says, is people found a way around cash:
Another is production was sustained by extending informal credit as market adjusted to the new norm.
But people did move from cash to electronic means, as he concludes.

All in all quite a dull view of things from AS

Next will be GST:

Various people call it diiferently:
From Gabbar Singh Tax by Original Tirunelveli Halwa maker Rahul Gandhi (while promising to deliver the Real and Original GST) ;
to Great Structural Transformation Act by AS in his book!

Very interesting observation by AS:

He is very impressed with Manish Sisodia of AAP because of the way he went about improving public primary schools in Delhi.
And Sisodia was keen on implementing GST when it sought to bring land and RE under its net

That Gold was sought to be taxed at a rate between 6 and 12 percent but which didn't go very well and recommended to be at 1%
When Centre levied this excise of 1% there was an upsurge in jewellery trading community since gold was a store of value for the poorest.

As per data more than 80-90 percent of Gold was being consumed by the richest decile of the population poor accounting for a miniscule portion.
Still the voices were loud and clear.
Keeping low taxes on Gold was actually a boondoggle for rich cloaked in Socialistic rheotric

While socialistic arguments were presented, the real giveaway was that Communist party in Kerala levied the highest tax on Gold in India.
After much debate the important principle that Centre would tax Gold had been established.

In the end instead of a more reasonable tax of 6 or even 10 percent GST rates on Gold ended up at 3 percent.
Since 3 was greater than 2, this representedprogress.
But it was hardly Gold Standard.
How I wish policy makers were more persuasive and border on adamancy than to cave in

The original report recommended a revenue neutral rate of 15-15.5% as GST and a Standard rate of 18% And it recommended comprehensive coverage keeping exepmtions to a minimum based on products of social benefits only so that standard rate can be lower to benefit poorer consumers

GST as in its present form is not perfect and no country has implemented a perfect system from inception. The rates and mechanisms have only evolved over a period.It's far better to start and evolve than wait for a perfect system

As compared to various other countries like Australia,Germany or Austria Indian GST is a leap forward in creating a much cleaner dual VAT minimizing disadvantages of completely independent and centralized systems.

Sometimes we are insufficiently appreciative of how much the country has achieved in coming to this point with the GST.
Credit all political parties in States and Centre who worked towards GST even if all of them have ocassionally worked against it.
GST symbolizes Indian politics

More on GST and implementation later