MARKET PERSPECTIVE

By J Mulraj

June 24-30, 2023

They need more trust in free markets

The dictionary definition of a bureaucrat is an official, usually in a Government office, who is a stickler for rules. A wag has a different definition.  The concept came from England, he says, which is across the sea. So, if you split the word, bureau-c-rat, we see that it is a rat which crosses the sea (c) to get into the bureau!

For example, though GST tax collection in April 2023 was a whopping ₹ 187,000 crores, the highest ever, the bureaucrats in the IT department are, just like Oliver Twist, hungry for more.

This insatiable appetite for tax revenue is, perhaps, the consequence of deficits run up by several States. This, in turn, is driven by electoral promises of freebies, essentially a party thrown spending other people’s money. The PM of Singapore recognizes the danger of depleting the savings by such freebies, and said so, in a speech which our politicians have heard with ears and minds closed. This column has, earlier, suggested one solution.  The polity should pass a law mandating that any party promising freebies, prior to an election, must be made to bear a part, say 20%, of the estimated cost, from its own coffers. It is remarkable how swiftly generosity vanishes when the donor has to dip into his own pocket!

One of the recently devised bizarre ways to extract more tax revenue was to have a TCS (tax collected at source) on spending by Indians, when overseas. This has been temporarily shelved, not due to the dawning of common sense, but because of a technical glitch.

Or consider the ease with which bank borrowers have  defaulted on loans, fleeing to other countries, forcing a loan write off. Loans written off by public sector banks were ₹ 7,000 crores in 2013, rising to ₹ 119,000 crores in 2022!

So, in order to pay for this bureaucratic ineptitude, and for the ineffectiveness of a regulatory and investigative system, and for the apathy of a judicial system, the tax bureaucracy thinks of new ways to squeeze the tax payer. The huge GST collections aren’t enough!

Every action has an equal and opposite reaction. The petty mentality of myopic tax bureaucrats is driving high net worth (successful wealth creators) out of India. As per this report of Henley and partners,  the number of high net worth individuals migrating out of India is second in the world, after China. The IT bureaucrats should reflect whether, in trying to extract a tax on foreign spending (of money which is already taxed), they are not killing the goose, HNW individuals, laying the golden eggs?

Or look at this chart of 25 CEOs, of Indian descent, heading US companies, aggregatively valued at $ 5 trillion.

People applaud, as they should, the caliber of talent nurtured in India. But should not policy makers lament the fact that this talent pool, managing more wealth than India’s GDP, is doing so for USA and not for India?

Should policy makers not take time off to wonder what steps they need to do to retain such talent in India? Should they not pull up the bureaucrats who build pot holed roads, or not freely allow more schools, colleges and institutes of higher education, of a good standard to make them want to stay in India and educate their kids here? Should political leaders not try and find ways to stop themselves from raiding the public coffers in order to get elected?

Should we not be building an environment to retain talent, and grow our economy? Are we not doing the opposite of Make In India? Making the entrepreneurial and management talent at home, to send abroad, creating wealth outside India?

Will PM Modi not become a Pied Piper to take the rats out of the bureau, and broaden their vision? Are we not wasting the efforts of the PM and the EM to build up India’s brand image with such petty nonsense?

When will India start planning for the future?

One can see the plight of other countries who have improperly planned. Pension schemes defined benefits of pensioners, which rose with inflation, for those who lived longer. They are only now, migrating them to defined contributions. In trying to prolong the retirement age, to alleviate the inadequacy of pension funds, France has seen street protests. India has to address this problem now, when demography is its favor, rather than later.

in global news of interest, Jerome Powell has warned that there may be two more hikes in interest rates in future. The next meet is in July. The Bank of England Governor has also warned that interest rates will stay higher for longer.

The sharp rise in interest rates, to fight inflation, created a problem at banks like Silicon Valley Bank, which had received large deposits during the pandemic and had, safely, it felt, invested the money in T Bills. When rates went up by 5%, speedily, the value of this investment dropped sharply.

As per FT , Bank of America faces a $ 100 b. paper loss for the same reason! USA is going to face another round of bank defaults, this time in Community banks. These have lent money for commercial real estate, which has slumped.

The Ukraine war took an unexpected twist in a short lived mutiny (realtor staged) by the head of the Wagner group. It is high time that the war, which should never have begun, is now ended. The narrative that Ukraine can win the war seems illogical, so efforts to continue it is a senseless and soulless waste of time, money, ammunition and lives.

Last week the BSE Sensex closed at an all time high 64718, for a weekly gain of 1739 points.

India’s Kharif crop could be hit because of delayed, hence insufficient rains. Bihar and Kerala each have a deficiency of 60%, while Karnataka, Maharashtra, Telangana and Jharkhand each have a deficiency of over 40%. Paddy, maize and tur dal crops will be hit. So will GDP, as agriculture has a 20% share in GDP.

Mr Modi has built India’s brand image. But this needs a continuous effort to sustain and further build. Are the bureaucrats, tasked with that, capable and far sighted enough? They need to prove it.

Picture Source: https://images.app.goo.gl/9RVCPpEnnxw1ZFkq8

Comments may be sent to jmulraj@asiaconverge.com