01 February 2024

India Interim Budget 2024-25: Analysis

INDIA INTERIM BUDGET 2024-25: ANALYSIS

Budget has 4 components:
1. Revenue receipts = Good income (mainly taxes)
2. Capital receipts = Bad income (mainly loans)
3. Revenue expenditure = Bad spending (salaries, schemes, subsidies, interest payments, etc)
4. Capital expenditure = Good spending (mainly infrastructure)

So how should a Budget ideally be?
1. Revenue receipts (good income) must increase at the same rate as the GDP (nominal).
2. Capital receipts (bad income) must decrease - or increase as little as possible.
3. Revenue expenditure (bad spending) must decrease - or increase as little as possible.
4. Capital expenditure (good spending) must increase as much as possible.

The table shows that in this Budget:
1. Revenue receipts (good income) has increased by 11.2% - which is close to the increase in nominal GDP (10.5%).
2. Capital receipts (bad income) has decreased by 1.5%.
3. Revenue expenditure (bad spending) has increased by a modest 3.2%.
4. Capital expenditure (good spending) has increased by a high 16.9%.

Finally the most important thing: The Budget is reducing the fiscal deficit from 5.8% of GDP to 5.1%. So overall, we can say that this is a disciplined Budget . . .

23 January 2024

The Paradox Of India's Trade Deficit/Surplus

Every month, India's trade data comes out - and the media reports the change in our trade deficit. It reports an increase in our trade deficit as bad news - and a decrease in our trade deficit as good news.

Ideally a country must have a trade surplus - or at least, not have a trade deficit. So by extension, an increase in the trade deficit is bad - and a decrease in the trade deficit is good. And vice versa for trade surplus. But this is in the long run. In the short run, there is a paradox in the relationship between:
1. The change in a country's trade deficit/surplus
2. The country's economic growth relative to the world
This follows from a basic law of economics:
1. A country's imports are proportional to its economy's output
2. But its exports are proportional to the world economy's output*
(everything else remaining the same)

Scenario 1: A country's economy does better than the world economy - ie, the country's growth rate increases and the world's growth rate decreases. Here the country's imports will increase (because its growth rate has increased) and its exports will decrease (because the world's growth rate has decreased) - so its trade deficit will increase (or its trade surplus will decrease).

Scenario 2: A country's economy does worse than the world economy - ie, the country's growth rate decreases and the world's growth rate increases. Here the country's imports will decrease (because its growth rate has decreased) and its exports will increase (because the world's growth rate has increased) - so its trade deficit will decrease (or its trade surplus will increase).

Thus we have the paradoxical situation where a country's trade deficit increases when its economy does better than the world economy - and decreases when its economy does worse than the world economy. And vice versa for trade surplus.

Of course, in the long run, we must improve our competitiveness (especially in manufacturing), increase our exports, reduce our trade deficit - and eventually become a trade-surplus country. But till then, we must take negative news-reports about an increase in our trade deficit (and positive news-reports about a decrease in our trade deficit) with a pinch of salt . . .

Caveat: This analysis is based on the assumption that everything else remains the same - which never happens in the real world. Trade is a system of equations with many variables. Example: Our trade deficit usually increases in the festival season (Oct/Nov) due to an increase in gold imports.

*[More correctly: A country C's exports are proportional to the weighted average of the outputs of its export markets - where each export-market's weight is its share in the total exports of country C. I have used the terms "world economy", "world economy's output" and "world's growth rate" as approximations]

20 January 2024

'Main Atal Hoon': Movie Review

REVIEW:

'Main Atal Hoon' is not just the inspiring journey of a man from swayamsevak to RSS pracharak to BJP leader to Prime Minister. It is the electrifying saga of the rise of modern nationalism in this sacred land. It is the soaring epic of the birth of a strong state in this ancient civilisation. Script-writer Rishi Virmani and director Ravi Jadhav deserve the highest praise for telling us this story in a powerful and exciting way. The movie also shows us Vajpayee's personal life in a very mature and dignified manner.

As for Pankaj Tripathi, he is a great actor who has given many great performances - and will give many more. But this is the greatest performance of his career - and one of the greatest of all time. He disappears completely right in front of our eyes - and brings Atal Bihari Vajpayee to life fully. We even forget that an actor called Pankaj Tripathi exists in this world.

My only criticism: The movie does not even mention Vajpayee's greatest achievement - privatisation. But economics is interesting only to economists - and to everybody else, it is the most boring subject in the world. So this omission is understandable.

'Main Atal Hoon' is basically the story of a man who loved India with all his heart. So watching this movie is like bathing in the sweet waters of Mother India's love.
Pranaam, Atal-ji . . .

23 December 2023

Best Movies Of 2023

BEST MOVIES OF 2023

1. ಟೋಬಿ (Toby)
2. Sam Bahadur
3. Woman King
4. Killers Of Flower Moon
5. Oppenheimer
6. Haunting In Venice
7. Fabelmans
8. Golda
9. Dumb Money
10. Mission Impossible: Dead Reckoning


17 December 2023

2023 People Of The Year: India's Women Wrestlers

# For fighting against sexual harassment and speaking up for countless girls and women
# For reminding us that right vs wrong is more important than politics and ideology
# For fighting against the abuse of power and keeping our democracy alive
# For waking up our conscience and reminding us of our duty
# For showing us the true meaning of heroism

India's women wrestlers are 2023's People Of The Year . . .

15 December 2023

Raghuram Rajan: 'Breaking The Mould: Reimagining India's Economic Future'

Dr Raghuram Rajan visited the Reserve Bank of India's economics research institute (IGIDR, Bombay) yesterday and talked about his new book Breaking The Mould: Reimagining India's Economic Future.

The historical process of development/modernisation has been from agriculture to manufacturing to services. That is how Europe, America and East Asia have developed. But India missed the manufacturing stage - and the consensus opinion is that we must correct this mistake. The current government is trying to do this [example: the Production Linked Incentives (PLI) scheme].

Dr Raghuram Rajan challenges this conventional wisdom, arguing that we are trying to play the 20th century game - instead of playing the 21st century game. He argues that manufacturing is a thing of the past and that the future lies in services. And to win this 21st century services game, we have to fundamentally reform our systems - most importantly our education system.

One may or may not agree with everything that Dr Raghuram Rajan says - but he is definitely a very intelligent, knowledgeable and thought-provoking economist . . .

10 December 2023

India's Jobs: Jul-Sep 2023

The Periodic Labour Force Survey's (PLFS) report for Jul-Sep 2023 was released a few days ago (for cities). If we compare it with the Jul-Sep 2022 report, we can see how India's jobs scenario has performed over the last one year:

# The good news is that the Worker Population Ratio (WPR) has increased, by 1.3% points - from 34.9% to 36.2%.

# The first bad news is in Graph 1 - the % of workers in the 3 sectors (agriculture, industry, services). The % of workers in agriculture has increased - by 0.4% points (from 5.7% to 6.1%). And the % of workers in industry has decreased - by 1% point (from 33.4% to 32.4%). So effectively workers have moved out of industry into agriculture.

# The second bad news is in Graph 2 - the % of workers by type of employment (regular wage/salary, self employed, casual labour). The % of regular wage/salary workers has decreased - by 0.4% points (from 48.7% to 48.3%). And the % of self-employed workers has increased - by 0.7% points (from 39.7% to 40.4%). So effectively workers have moved out of regular wage/salary jobs into self-employment.

It is not enough to simply create jobs. We must create good jobs - ie:
1. Jobs in industry + services (vs agriculture)
2. Regular wage/salary jobs (vs self-employment)