Archive for March, 2012

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panel discussion on India’s federal budget

Wednesday 28 March, 2012

I attended this panel discussion Budget Talk:  Post Budget Panel discussion, organized by the GITAM Institute of Management & sponsored by Indian Bank & moderated by The Hindu newspaper.   The panelists consisted of  Satya Kumar of the Visakhapatnam Port Trust, Hari Naryan of GITAM, T.K. Chand of the Confederation of Indian Industry, Naresh Kumar of Symbiosis, accountant Chandra Sekhar, & tax specialist Kavita Rao.

The India Bank introduced the budget as the government’s vision for the economy & used the term “cruel to be kind” to describe it.  The Hindu moderator used the terms “bitter pill,” pragmatic, & practical to describe it, while noting growth seems to be slowing from 8.4% to 6.9% & the allocations for infrastructure appear low.

S Kumar commented on the recent proposals to raise the rates for the Indian railroad, a very controversial topic, calling it the backbone of India’s infrastructure, the single largest railroad under 1 management in the world, which moves the equivalent of the population of Australia everyday.  It’s now operating at a loss & has been deteriorating since liberalization in 1991.  It’s been long overdue to raise prices.  Managing the budget is a thankless job & requires a balancing act.

Naryan provided an economic analysis of the budget, calling it the ruling party’s framework for growth, equity, & employment.  Growth is declining due to global factors.  India is not insulated from external shocks & suffers from the structure & direction of trade.  India’s biggest trading partner is the UAE, then China, the US, & Europe.  Tight monetary policy & rising interest rates are limiting domestic consumption.  Agriculture & services are growing while industry is down.  Internal demand must be stimulated to spur growth, which requires investment, probably from private savings.  The trade deficit could lead to another balance of payments crisis.  There are still too many loopholes in the budget.  This budget makes changes only incrementally & thus will have very little impact.

Chand took the local steel plant’s point of view as the barometer of the economy & used China’s dominance of the industry as an example of India’s being left in the dust.  India needs more fiscal consolidation for more growth, which was down 3% last year.  India is protecting its local industry with rising import duties.  Taxing productive activities is resulting in sales declines, while still keeping prices high.

N Kumar likened the minister who proposed the budget to a cricket star who recently retired, indicating he was @ the end of his career too.  He stated the country can’t grow without more power:  the budget is cruel to the country, but kind to his party.  Kumar noted the discrepancy in IT exports in the state of Andhra Pradesh between Hyderabad & everywhere else-there is no planning, just employment of  more people.  Earlier IT companies would earn $5K/employee/month, but that has been driven down to $2K/employee/month as international companies have mirrored the operations of local companies here in India.  Taxes, including service & income taxes, are stifling this industry, & their fairness is in question.

Sekhar admitted the need revenues/taxes, & that the software industry is getting the back end.  The government is seeking FII’s (foreign institutional investors) to invest.  Taxes are much lower than they were in the 1980’s, when gold smuggling ruled.  There have been 113 tax amendments/proposals, but none propose a change in the corporate tax.  An equity saving scheme invests in equity of financial institutions only for those with income of <10 Lakh rupees, who get a 50% tax deduction.  A preventative health check-up gets you a 5K rupee deduction.  The definition of senior citizen was reduced from age 65 to 60, but other provisions were not changed.    There are corporate incentives for the power sector.  Now all services are taxed.

Rao, as a representative from the tax office, implored, “Pay your taxes.  If you breathe, you pay.”  Sales taxes are a subset of commercial taxes, as VAT & GST are in the same group.  On the women’s agenda, look @ the dais (all men, except for 1 woman)-women have not benefited at all.

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pre-summit BRICS conference in India

Tuesday 20 March, 2012

Last week I attended this international seminar on BRICS & the New World Order organized by the GITAM School of International Business (GSIB) here in Visakhapatnam, India.  The conference featured diplomats from 3 of the BRICS countries in addition to India & academicians from China & India who have written papers on relationships between the BRICS countries.  Only a representative from Brazil was missing.  The local press covered the conference BRICS conference held at GITAM The hope was for the conference to make contributions to the upcoming summit in a couple weeks in New Delhi.

Dr. Nikolay Listopadov, Consul General of Russia in Chennai led off by noting that 36% of the world’s GDP is contributed by BRIC’s countries now & that Russia was the country that initiated the BRIC conferences.  The relationships between Russia & India are strong, based on their shared recent history after India adopted the Soviet economic model when it attained independence in 1947.  Russia was instrumental in the construction in the local Vizag Steel Plant-I see a number of Russians @ the beach when I go swimming near the Bay of Bengal each weekend.

Deng Xijun, Minister-Counselor & DCM @ the embassy of China in New Delhi indicated that the BRIC’s constitute 42% of world GDP & accounts for 50% of the world’s GDP growth.  He stated 4 goals:

  1. Peace & stability, in the spirit of democracy
  2. Common development with a better monetary & financial system
  3. to bolster multilateral exchanges
  4. strengthen BRICS cooperation

He moved onto improving China-India relations 3 ways:

  1. high-level interaction
  2. bilateral economic growth (trade has increased 10X), from $74B now to $100B by 2015
  3. close consultation on converging interests in the UN

Pheko Weeto, Director of South Asia Directorate of the Dept. of International Relations & Cooperation of South Africa from Pretoria, 1st acknowledged India’s gift of Gandhi a century ago.  South Africa is promoting lots of South-South cooperation & development, & trying to raise voices not heard by the UN, such as by getting more seats on the UN Security Council.  The BRICS are changing the new world order, but with 18% of global trade are still relatively small.  Pursuing partnerships for peace will be valuable.

Dr. Vamsi Vakulabharanam of the University of Hyderabad took a look @ the relationship between economic growth & rising inequality in China & India, which is related to sustainability & not just social justice.  Because of differences in data availability, he had to compare Chinese incomes with Indian consumption.  He brought up the point that the Indian Gini Coefficients, a topic we just happened to have studied in my International Business Environment class, which is an indicator of income inequality, have been rising, which indicates rising inequality, which is an indicator of the rural/urban gap.  The Chinese Household Income Project (CHIP) found that Chinese Gini Coefficients were rising along with their rural/urban gap too.  Both Gini Coefficients have increased by about 10%.  This creation of urban capitalists is creating a new urban middle class which is redrawing the relationship between the state & classes.  These levels of inequality are unsustainable in the medium-long term.

Dr. Guo Ji of Beijing Normal University examined how changes in corporate income tax rates are affecting foreign direct investment (FDI) in China.  Special Economic (Export) Zones used to pay only 15% corporate income taxes, but these were abolished in 2008, when they moved to 33% for all foreign & domestic companies.  His preliminary results indicate that the changes in tax rates have had little significant effect on FDI.  The good news for India is that FDI is not a 0-sum game, so whatever FDI goes to China does not detract from what comes to India.

Prof. K. Srikanth of the Centre for East Asia Studies @ Jawaharlal Nehru University in New Delhi talked about China’s Multilateralism & the BRICS.  He started by saying China moved from working bilateral relationships to multilateral ones by staying neutral @ all costs, never leading, keeping a low profile, & forming relationships with all countries, regardless of ideology.  The hated US claims that China hides their capabilities & simply bides their time to wait issues out.  China was an original UN member, but then withdrew with the Warsaw Pact in 1961.  China now feels they are unable to oppose a single unipolar power singlehandedly, but that there are now 4 other major powers.  The BRICS matter because they constitute these %’s of world statistics with China’s contribution in ():

  • GDP 15% (1/2)
  • Foreign exchange reserves 40% (30%)
  • Exports 15% (10%)
  • FDI 15% (6%)
  • CO2 emissions 33% (21%)
  • Population 43%
  • global trade 18% however intraBRIC trade is minimal, only $120B

There have been 4 BRICS summits:  Yekaterinburg, Russia in 2009, Brasilia, Brazil in 2010, Sanya, China in 2011, & New Delhi will be held @ the end of March, 2012.

Prof. Ganti Subrahmanyam of GSIB offered 5 suggestions for the upcoming BRICS conference:

  1. implement reserve pooling because “barter” avoids currency needs in border regions
  2. agree to swap credit lines, which provides self-insurance
  3. implement innovations in debt management like Russia issuing Yuan-denominated bonds in Hong Kong to save interest expenses
  4. to address demographics changes & take advantage of demographic dividends, have the Chinese (declining population) pay for education of youth in India (increasing population) with an international intergenerational swap
  5. create a new currency similar to the € for the BRICs.

The BRICS need to cooperate more among themselves.