December 2017

Consumer price inflation rises, industrial output slows down

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India’s retail inflation unexpectedly accelerated to a 15-month high of 4.88%   in November 2017 while industrial production slowed down to 2.2% in October. Retail inflation, which rose 3.58% in October, rose in the subsequent month mainly on account of rising fuel and food prices. While fuel price inflation accelerated to 7.9%, food price inflation was up 4.4% in November. The inflation data thus revealed the growing downside risk of rising crude oil prices. Reserve Bank of India (RBI) had flagged the upward pressure on inflation including rising fuel prices and the increase in house rent allowance (HRA) to central government employees in its monetary policy review earlier this month, when it kept policy rates unchanged. It had estimated that retail inflation will be around 4.3-4.7% in the third and fourth quarter of 2017-18.

The central bank said that the recent rise in crude oil prices may sustain, especially on account of Organization of the Petroleum Exporting Countries’ decision to maintain production cuts through next year. According to the RBI, any adverse supply shock due to geopolitical developments could push up prices even further. Crude oil prices reached a 30-month high on Tuesday at $65 a barrel, indicating that pressure on inflation, at least on account of fuel, is expected to continue.

 Separate data released by the government showed that India’s factory output, measured by the Index of Industrial Production (IIP), slowed in October 2017 from an upwardly revised 4.14% in September. While mining output was stagnant in October, manufacturing and electricity grew at 2.47% and 3.2%, respectively. Capital goods production, which indicates investment demand in the economy, grew for a third consecutive month in October, by 6.8%. However, consumer durable goods contracted for the second consecutive month at 6.9%.  According to analysts, there was volatility in production data due to implementation of GST. However, it was expected that this would stabilize. If output does not pick up in November and December, the stagnation could continue till March. Only infrastructure, steel and automobiles are doing well. Rest of the sectors are lagging (behind).  The deceleration in factory output suggests the turnaround in investment and demand is yet to resume in earnest.

It needs to be noted that India’s gross domestic product (GDP) growth rebounded to 6.3% in the quarter ended 30 September from 5.7% in the June-ended quarter as activity in the manufacturing sector accelerated. RBI estimates that the Indian economy will grow at 6.7% in 2017-18, which suggests a significant improvement in the second half of this fiscal year.

Reserve Bank of India (RBI) had flagged the upward pressure on inflation including rising fuel prices and the increase in house rent allowance (HRA) to central government employees in its monetary policy review earlier this month, when it kept policy rates unchanged. It had estimated that retail inflation will be around 4.3-4.7% in the third and fourth quarter of 2017-18.

World Inequality Report 2018

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According to the World Inequality Lab’s World Inequality Report 2018, the richest 1% captured twice as much as the poorest 50% of world population since 1980. In other words, since 1980, 27% of all new income worldwide was captured by the richest 1%, while the poorest 50% captured only 13% of growth.

 The World Inequality Report 2018 relies on a cutting-edge methodology to measure income and wealth inequality in a systematic and transparent manner. By developing this report, the World Inequality Lab seeks to fill a democratic gap and to equip various actors of society with the necessary facts to engage in informed public debates on inequality.

Outlook on global income inequality

Income inequality has increased in nearly all world regions in recent decades, but at different speeds. The fact that inequality levels are so different among countries, even when countries share similar levels of development, highlights the important roles that national policies and institutions play in shaping inequality.

 Income inequality varies greatly across world regions. It is lowest in Europe and highest in the Middle East -Inequality within world regions varies greatly. In 2016, the share of total national income accounted for by just that nation’s top 10% earners (top 10% income share) was 37% in Europe, 41% in China, 46% in Russia, 47% in US-Canada, and around 55%  in sub-Saharan Africa, Brazil, and India. In the Middle East, the world’s most unequal region according to our estimates, the top 10% capture 61% of national income.

 Findings on global wealth inequality

The combination of large privatizations and increasing income inequality within countries has fueled the rise of wealth inequality among individuals. In Russia and the United States, the rise in wealth inequality has been extreme, whereas in Europe it has been more moderate. Wealth inequality has not yet returned to its extremely high early-twentieth-century level in rich countries.

 Increasing income inequality and the large transfers of public to private wealth occurring over the past forty years have yielded rising wealth inequality among individuals. Wealth inequality has not, however, yet reached its early-twentieth-century levels in Europe or in the United States.

The rise in wealth inequality has nonetheless been very large in the United States, where the top 1% wealth share rose from 22% in 1980 to 39% in 2014. Most of that increase in inequality was due to the rise of the top 0.1% wealth owners. The increase in top-wealth shares in France and the UK was more moderate over the past forty years, in part due to the dampening effect of the rising housing wealth of the middle class, and a lower level of income inequality than the United States’.

 Evolution of private and public capital ownership matter for inequality

Economic inequality is largely driven by the unequal ownership of capital, which can be either privately or public owned. We show that since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries. Arguably this limits the ability of governments to tackle inequality; certainly, it has important implications for wealth inequality among individuals.

 Outlook for India

Deregulation and opening-up reforms in India since 1980s have led to substantial increase in inequality so much that top 0.1% of earners has continued to capture more growth than all those in the bottom 50% combined.

 In 2014, the share of national income captured by India’s top 1% of earners was 22%, while share of top 10% of earners was around 56%. Top 0.1% of earners has continued to capture more growth than all those in the bottom 50% combined. The bottom 50% now have about 15% share in the total income. This rising inequality contrasts to the 30 years following the country’s Independence, when income inequality was widely reduced and the incomes of the bottom 50% grew at a faster rate than the national average.

 Future of global inequality and how to tackle it

World Inequality Report 2018 projects income and wealth inequality up to 2050 under different scenarios. In a future in which “business as usual” continues, global inequality will further increase. Alternatively, if in the coming decades all countries follow the moderate inequality trajectory of Europe over the past decades, global income inequality can be reduced—in which case there can also be substantial progress in eradicating global poverty.

Rising wealth inequality within countries has helped to spur increases in global wealth inequality. If it is assumed that the world trend to be captured by the combined experience of China, Europe and the United States, the wealth share of the world’s top 1% wealthiest people increased from 28% to 33%, while the share commanded by the bottom 75% oscillated around 10% between 1980 and 2016. The continuation of past wealth-inequality trends will see the wealth share of the top 0.1% global wealth owners (in a world represented by China, the EU, and the United States) catch up with the share of the global wealth middle class by 2050.

Global income inequality will also increase if countries prolong the income inequality path they have been on since 1980—even with relatively high income growth predictions in Africa, Latin America, and Asia in the coming three decades. Global income inequality will increase even more if all countries follow the high-inequality trajectory followed by the United States between 1980 and 2016. However, global inequality will decrease moderately if all countries follow the inequality trajectory followed by the EU between 1980 and today.

Going ahead, more equal access to education and well-paying jobs is key to addressing the stagnating or sluggish income growth rates of the poorest half of the population. Governments need to invest in the future to address current income and wealth inequality levels, and to prevent further increases in them.

Govt would bear MDR charges up to Rs. 2000 on all debit cards

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The Union Cabinet approved (December 15, 2017) a proposal mandating that government will bear the merchant discount rate (MDR) charges on transactions up to Rs 2,000 on all debit card, BHIM UPI and Aadhaar-enabled payment systems in order to promote digital transactions in the country. This means apart from merchants, consumers will not  have to bear any charges on such transactions.  The MDR subsidy will apply on transactions from January 1 for a period of two years. The Centre is estimated to reimburse Rs 1,050 crore to banks in FY19 and Rs 1,462 crore in FY20 towards MDR subsidy.

Merchant Discount Rate is the rate charged to a merchant by a bank for providing debit and credit card services. It is the charge a merchant pays to a bank for availing card transaction services. The bank offering the service to the merchant is called the acquiring bank. The rate is determined based on factors such as volume, average ticket price, risk and industry. The merchant must set up this service with a bank, and agree to the rate prior to accepting debit and credit cards as payment. After picking up during initial few months post demonitisation digital transactions had increased, but later the process slowed down. The move is supposed to have a positive effect on digital transactions.

Trump recognises Jerusalem as Israel’s capital

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President Donald Trump recognised the disputed city of Jerusalem as Israel’s capital on November 06, an historic decision that overturns decades of US policy and risks triggering a fresh spasm of violence in the Middle East. He claimed, “I have determined that it is time to officially recognise Jerusalem as the capital of Israel.” The move makes the United States the first country to recognise Jerusalem as Israel’s capital. Palestinians called a general strike as world leaders from across the Arab world and some from Europe denounced the move. Israel considers the city its eternal and indivisible capital and wants all embassies based there.

President Trump contrary to seven decades of American foreign policy which aimed at brokering peace between Israel and the Palestinians, has reversed the direction of US policy of amicable mediation in the conflict and taken side of Israel by asserting that US would recognize Jerusalem as Israel’s capital. Analysts believe that this decision of the American President is more driven by his election campaign promises rather than diplomatic calculations. The Middle East has been a perplexing problem for several entwined complex issues and such drastic measures may stir violent responses and instability in the region. He appealed to evangelicals and ardently pro-Israel American Jews in 2016 by vowing to move the embassy, and he seems determined to make good on his word.

Mr. Trump spent November 05 morning explaining the policy change in telephone calls with Prime Minister Benjamin Netanyahu of Israel; Mahmoud Abbas, the Palestinian Authority president; and to Arab leaders who warned him that it would disrupt the peace process, perhaps fatally, and could unleash a new wave of violence across the region.

King Salman of Saudi Arabia told Mr. Trump in their call “Moving the U.S. embassy is a dangerous step that provokes the feelings of Muslims around the world.” Late on Tuesday, Palestinian national and Islamic groups issued a joint statement calling for three days of “popular anger” to protest Mr. Trump’s move, beginning on Wednesday throughout the Palestinian territories and in demonstrations at United States embassies and consulates around the world.

Fearing attacks, the American consulate in Jerusalem barred employees and family members from going to the Old City or the West Bank, while the State Department urged embassies around the world to tighten their security.

Jerusalem is one of the world’s most fiercely contested swaths of real estate, with both sides disputing each other’s claims. West Jerusalem is the seat of Israel’s government, but the Palestinians view East Jerusalem as the capital of a future Palestinian state, and most of the world considers it occupied territory. Jerusalem’s Old City has the third-holiest mosque in Islam and the holiest site in Judaism, making the city’s status a sensitive issue for Muslims and Jews worldwide alike.

Mr. Trump’s decision drew applause from some in Israel and the United States, even if Mr. Netanyahu and the Israeli government were studiously silent in advance of the president’s speech.Amos Yadlin, executive director of Tel Aviv University’s Institute for National Security Studies said, “The U.S. recognizing Jerusalem as Israel’s capital is a positive and important step, particularly amid Palestinian efforts to undermine the historic ties between the Jewish nation and the City of David.” Morton Klein, president of the Zionist Organization of America, said, “It is high time to move the embassy to Jerusalem.” He added, “Not moving it to Jerusalem for 22 years has not brought us closer to peace.”

White House officials said Mr. Trump remained committed to what he has called the “ultimate deal” between Israel and the Palestinians. The decision, they said, was “recognition of current and historic reality.” They said it could hasten, rather than impede, peace negotiations by removing a source of ambiguity from the American position.

Mr. Trump, officials said, would make clear that the United States is not taking a position on whether, or how, Jerusalem is divided between Israel and the Palestinians. He will also not take a position on a disputed area of the Old City, known as the Temple Mount to Jews and the Haram al-Sharif to Muslims, which has been a flash point for tensions. But even with those caveats, Mr. Trump’s decision seems likely to disrupt, if not dissolve, the peace effort. Administration officials said they expected the Palestinians to walk away from the process, at least for now. The White House is girding itself for an eruption of violence, coordinating plans with several agencies to protect American citizens abroad.

To some extent, Mr. Trump’s willingness to take such a risk underscores how little progress his peace negotiators — led by his son-in-law, Jared Kushner — have made. Mr. Trump’s pledge was extremely popular with evangelicals and pro-Israel backers, including the casino magnate Sheldon Adelson, who donated $25 million to a political action committee supporting Mr. Trump during the presidential campaign. Mr. Adelson expressed anger when Mr. Trump signed the waiver in June to keep the embassy in Tel Aviv.

Reaction to Mr. Trump’s move in the Arab world was swift and negative, even from normally friendly leaders. King Abdullah II of Jordan strongly cautioned against the move, “stressing that Jerusalem is the key to achieving peace and stability in the region and the world,” according to a statement from the royal palace in Amman. The Hashemite Kingdom of Jordan is the custodian of Al Aqsa Mosque in Jerusalem. “King Abdullah stressed that the adoption of this resolution will have serious implications for security and stability in the Middle East, and will undermine the efforts of the American administration to resume the peace process and fuel the feelings of Muslims and Christians,” the statement said.

Few details of the conversation between Mr. Trump and Mr. Abbas were released, but a spokesman for the Palestine Liberation Organization said the call had given shape to the worst fears of Palestinians. “It’s very serious,” said the P.L.O. spokesman, Xavier Abu Eid. “Things look very bad.” The Palestinian news agency, WAFA, quoted Mr. Abbas’s spokesman, Nabil Abu Rudeineh, as saying that Mr. Abbas will continue his contacts with world leaders to prevent such “unacceptable action.” King Abdullah also spoke with Mr. Abbas, assuring him of Jordan’s support for the Palestinians “in preserving their historic rights in Jerusalem and the need to work together to confront the consequences of this decision.” Mr. Trump, officials said, assured Mr. Abbas that the administration would protect Palestinian interests in any peace negotiation with Israel. He also invited the Palestinian leader to visit him in Washington for further consultations. Mr. Abbas said he could not come for a while.

‘We Need More Youthful Dreamers Like You’: A Letter to Jawaharlal Nehru

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(This appeared in one of the most independent  journalism platforms in India named The Wire and the featured article has huge worth for students who want to understand the great leader and the first prime minister of India- CSS Editorial)

My dear Jawaharlal ji,

Greetings from an India you loved and which loved you immensely in return. On your 125th birth anniversary, I had written to you narrating the life and times of the nation. I had promised in the closing lines that if the regressive trends then seen in several spheres come to an end, I shall not write to you again. But that was not to be and hence I hereby sit down to write to you again.

Contrary to my fragile hope, in the last three years we have been witness to an unfortunate vilification campaign around you and your ideas about freedom, secularism and socialism. The campaign managers have gone to the extent of putting you perpetually in an adversarial position with your colleague Sardar Patel and are using all kinds of propaganda techniques to convince the ‘New India’ that this alleged rivalry beset this nation the day Gandhiji chose you over Patel as his political heir. But then I shudder to imagine whether they have the capacity or even the inclination to appreciate the width and depth of the relation you shared with both of them.

The methodical and structured campaign to vilify your legacy and replace it with the more ‘organically patriotic’ legacy of Sardar Patel is undoubtedly the most dangerous design the collective memory of this nation has ever come across. We are being led by people who have no understanding of the nuances which made the freedom movement richer on account of differences over crucial issues during the struggle for the liberation of India. We know there were palpable differences between two different view-points represented by two equally dominant factions after the Lucknow Congress of 1936. You were perceived to be close to the ‘Socialist Block’ – a perception which did not go down well with the other faction represented by Rajaji, Rajendra Babu and Sardar Patel. Both the group wrote to Bapu and as always he read and responded to each and resolved the differences. I wish to share a few lines from the letter written to you by Bapu in response to yours:

Your letter is touching. The fact is that your colleagues have lacked your courage and frankness. The result has been disastrous. I have always pleaded with them to speak out to you freely and fearlessly. But having lacked the courage, whenever they have spoken, they have done it clumsily and you have felt irritated.” And still further he tells you so very affectionately… “Resume your humour at the committee meeting. That is your most usual role, not which of a care-worn, irritable man ready to burst on the slightest occasion… How I wish you could telegraph me that on finishing my letter you felt as merry as you were on that New Year’s Day in Lahore when you were reported to have danced around the tricolour flag.

Jawaharlal ji! Of late, our politics is dominated by people who cannot fathom the trajectory of relationship you all enjoyed in spite of differences over strategic matters and priorities in pursuance of the goal of freedom. In your country, politicians have declared themselves as ‘counterfactual’ historians and they wish to rewrite the chapters/phases of our history with most regressive ideas and ideologies. These politicians-cum-counterfactual historians fail to discern (historically) the conspicuous presence of ‘differences’ of Gandhi with Gandhi himself, of you with yourself and of your colleague Patel with himself. Annals of history revealed to us that there were palpable differences between the Gandhi of 1916-17 and the Gandhi of 1931, or between the Patel of the Bardoli satyagraha days to the Patel of the Dandi March. We learnt that such ‘differences’ never agitated either the history or the historians; and they certainly they did not have to quarrel with the historical data. They all believed that history is not constituted by mono-causality and even great people within the folds of history had the freedom and the prerogative to appear less consistent at different points of time.

As a child, growing up with an inherited memory derived from a well-read and politically informed family, and also having been a recipient of historical memory from the text books in the mid and late 1970s, the counterfactuals never appealed to people of my generation. Probably, the idea of ‘what-might-have-been’, was an indulgence that was not accessible to us who sailed through government run schools, and were taught using a pedagogy which aimed at nurturing the ‘seeds of unity in diversity’ in us. Perhaps, and fortunately so, the ones, who decided the contours and content of the history to be transmitted to us, believed that the brutalisation of collective memory based on ‘speculation’ can only damage the possibility of a diverse yet inclusive India.

What shall I tell the votaries of this ‘New India’, which is keen to pit you against Subhash babu after they are done with denigrating you in the context of their imagined rivalry tales with Sardar Patel? I should tell them to read the most versatile and lovely correspondence of Subhash babu with you. In each of those letters he mentions you as the ‘most trusted comrade’. After your Europe trip in 1938, Subhash babu wrote to you:

You cannot imagine how I have missed you all these months. I realise, of course, that you needed a change very badly. I am only sorry that you did not give yourself enough physical rest…

Of course, I know the hopelessness of my own request to these people to read and develop a nuanced narrative of history. The people who use the expressions like ‘termite’ for their political opposition shall never be able to understand the inherent warmth defining the relationship amongst the leaders who were instrumental in shaping the value-frame of the idea of India.

The politics which thrives on hatred for freedom, secularism and socialism cannot simply accept that in spite of their disparaging campaign, you still occupy a central position in the cognitive framework of a huge majority of Indians, not only as a writer, a thinker, and a statesman but also as a youthful dreamer, who tried bringing the ideas of liberalism to a nation deeply divided on all possible parameters of birth and belonging. I read a letter written to you by the outstanding painter Amrita Sher-Gil, on receiving your autobiography. She was frank in saying… “As I rule I dislike autobiographies… They ring false. Pomposity and exhibitionism. But I think I will like yours… (because) you are capable of saying ‘when I saw the sea for the first time’, when others would say ‘when the sea saw me for the first time’.” In these words she really captured your spirit, Jawaharlal ji!

We needed such youthful dreamers like you in plenty to remind us that if the economy and the society remain aloof or were kept insulated from the democratic processes, we shall invariably lose the battle against poverty, hunger and inequality. To you democracy did not mean merely a political doctrine but a committed and continuous engagement in the shape of lived reality. You were at times a lonely voice which refused to weigh an opinion based solely on the anticipation of whether it shall shake the foundation of a popular belief or a venerated tradition. While proud of the rich heritage of India, you were conscious of the ills prevalent in the Indian society and lamented the deterioration of public life and inter-community engagement in newly independent India. You clearly attributed it to preferring irrationality over reason.

Dealing with the dangerously new garam hawa (hot gust of wind) of our times, we now realise how difficult it must have been for you and your friends to ensure that this nation does not become a sectarian Hindu Pakistan. You knew that the best safeguard to counter such reactionary sentiment lay in vigorously promoting a culture of accommodation and committing the state to safeguard the uniqueness of each religious group and its culture, apart from promising equality in every sphere. You were acutely aware of the dimension communal politics had acquired.

Just two days before the assassination of Bapu you wrote to Shyama Prasad Mukherjee sharing your concerns regarding the nefarious activities of the Hindu Mahasabha. You wrote:

…what pains me most is the extreme vulgarity and indecency of speeches being made from Hindu Mahasabha platforms. ‘Gandhi Murdabad’ is one of their special slogans. Recently a prominent leader of the Hindu Mahsabha stated that they aimed at the hanging of Nehru, Sardar Patel and Mualana Azad. Normally one does not like to interfere with any political activities however much one may dislike them. But there is a limit to this kind of thing, and I fear that the limit is being reached if it has not already been crossed. I write to you especially because of your own close association with the Hindu Mahasabha.

While I finish this letter (promising to write another one), on behalf of millions and millions of Hindustanis, I wish you a very happy birthday and take the liberty of sharing the birthday wishes for you by Sarojini Naidu in 1937:

What shall I wish you for the coming year? Happiness? Peace? Triumph? All these things that men hold supremely dear are but secondary things to you…almost incidental…I will wish you, my dear… unflinching faith and unfaltering courage in your via crucis that all must tread who seek freedom and hold it more precious than life… Not personal freedom but the deliverance of a nation from bondage. Walk steadfastly…if sorrow and pain and loneliness be your portion. Remember Liberty is the ultimate crown of all your sacrifice…but you will not walk alone.

Jai Hind

Manoj K. Jha

Manoj K. Jha is a professor in Delhi University

Ambedkar For Our Times

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The only leader from the pre-Independence era who continues to inspire millions, has become an icon of social revolt and is being discovered by more and more Indians across castes and religions is Babasaheb Ambedkar. As the country observed his 61st death anniversary on December 6, it is important to look at his core insights that were distilled in the Indian Constitution amidst the growing melee over mythology, legends, history and belief.

Many Indians believe in a single narrative fed to them by conservatives about India’s past and juxtapose it with the advent of foreign culture and hostile events. It was Ambedkar who wrote in Revolution and Counter-Revolution in Ancient India that long before the arrival of Islamic invaders and Christian explorers and missionaries, two parallel schools of thought existed in India.

The dominant one was the Vedic school, which believed in “divide and rule” by stratifying society into four tiers. The largest population was of the Shudras (modern day Other Backward Classes), divinely ordained to serve the upper three ranks. There were broken men living outside villages as “untouchables”, tribals living in hills and nomadic tribes. Half of the population — of females — was deprived of individual liberty.

The other school of thought that intermittently ran parallel to the Vedic tradition — like the Charvaka school and the worldview of the Buddha — was egalitarian. This ideology negated the Vedas and its structure. It peaked when emperor Ashoka implemented the Buddhist philosophy which emphasised not just on a welfare state for humans, but for animals and the ecology as well. This did not last long, as the Brahminical school, armed with powerful emotional instruments, managed to keep its flock together by promoting rituals, beliefs and ensuring the hegemony of Brahmins assisted by Kshatriyas and Vaishyas. According to Ambedkar, the worship of cow and vegetarianism stemmed out of a strategy to demonise Buddhists, who were ultimately branded “untouchables”. Ambedkar called Buddhism a revolution which turned the wheel of progress for all, not just the privileged minority of upper castes.

The arrival of foreigners and their missionaries radically changed the socio-economic, political and religious scenario. The impoverished and oppression-ridden Indian society was conducive to conversions. Besides, the political ambitions of warrior-kings made them seek the help of foreign invaders to settle scores with their domestic rivals. Meanwhile, the Brahmin orthodoxy continued to monopolise learning and controlling the minds of the masses. They interpreted hostilities in terms of the binaries of Hindu versus Muslim, Hindu versus Christian, etc, despite the fact that Hindu kings were assisted by Muslim warriors and advisers and vice versa.

After Independence, the nation builders, who were faced with the challenge of integrating not just hostile princely states, but binding people of different castes, religions and languages, turned to the Buddhist philosophy. The Constitution incorporated justice, liberty, equality and fraternity at its core. Its chief architect, Ambedkar, went a step further and converted to Buddhism in 1956. Among the constitutional values, fraternity is yet to manifest, as a majority of Indians fail to transcend narrow mental barriers, often becoming hostile in order to preserve privileges of caste, gender, religion, language etc. Most of them still equate Indian history only with the Vedic narrative.The universalisation of education and the quota for OBCs (subject to economic backwardness) is making more Indians discover Ambedkar and identify with the parallel narrative. The most glaring example of how the two ancient schools of thought function is the manner in which Mahatma Gandhi’s detractors dealt with him. When Gandhiji criticised some points in Annihilation of Caste, Ambedkar incorporated them in the next edition of his book with a point-wise rebuttal. When some Hindu fanatics had issues with Gandhiji, Nathuram Godse killed him.

The egalitarian narrative can save the country from the fanatics of different religions who make a hue and cry over “hurt sentiments” at the drop of a hat. The question is: How long are we going to stoop to the hyper-sensitivity of ill-informed people, misguided by the shroud political and religious interests?

The writer is a senior journalist based in Mumbai

Would Donald Trump’s Tax plan really help  ordinary working Americans and boost US Growth

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Massive tax cuts for working families across America,” was how Donald Trump described the tax bill, which passed the Senate on Saturday, in the first legislative success of his Presidency.

Trump also approvingly re-tweeted a group of economists at the weekend who claimed that: “The enactment of a comprehensive overhaul – complete with a lower corporate tax rate – will ignite our economy with levels of growth not seen in generations.”

But are these claims true? Will this tax package really benefit ordinary working American families?

And will it boost US growth?

What is this tax reform package?

The Senate’s bill lowers the top individual income tax rate from 39.6 per cent to 38.5 per cent and slashes the rates for most lower income tax brackets too.

Other major changes are a doubling in the exemption of the US version of inheritance tax and increasing access to a child tax credit.

For firms, the bill cuts the headline US corporation tax from 35 per cent to 20 per cent.

There’s also a tax cut for businesses structured as “pass through” entities, which means their income “passes through” to their owners and is taxed at personal income tax rates. The top tax rate on income earned from these entities is due to fall from 39.6 per cent to 15 per cent.

Would it help working Americans?

The Tax Policy Centre, made up of independent experts, has produced a distributional analysis of the impact of the Senate’s tax bill. This shows that the bill would reduce taxes on average for most Americans between 2019 and 2025. But by far the biggest beneficiaries of the tax cuts by over the next decade would be the top 1 per cent and the top 0.1 per cent of American households. And by 2027 taxes would rise for the lowest income groups.

The bill also repeals the Obama administration requirement that all Americans obtain health insurance, which is likely to mean that around 13 million fewer Americans, most of them less well-off, have health coverage by 2027, according to the non-partisan Congressional Budget Office. The tax cut for “pass through” companies is also likely to benefit wealthy individuals most of all. One major user of these structures is Donald Trump himself.

What about the impact on the US economy?

A group of economists wrote an open letter in the Wall Street Journal last month supporting the President’s tax cutting efforts and suggesting that the package could boost the US economy by 3 to 4 per cent in the long term. A larger group of economists (137 in all) wrote an open letter making similar assertions. But such claims has been fiercely contested by other economists, who have pointed to the lack of supporting evidence. A recent survey of a distinguished panel of some of the leading lights of the economics profession suggests virtually none expect any kind of long-term positive growth effect from the tax cuts. And the WSJ group have actually seemed to row back on their extravagant growth-boosting prognosis after being challenged.

What about the US deficit?

The Treasury Secretary Steven Mnuchin, a former Goldman Sachs banker and Hollywood financier, claimed in September that the tax cutting legislation would raise US GDP so much that it would not increase the country’s deficit (the gap between tax revenues and public spending) over the long term. Indeed, he even claimed it would ultimately reduce the US national debt.

But this is flatly contradicted by expert independent analysis. The Congressional tax watchdog, the Joint Committee on Taxation, estimated at the end of last month that on a “static” basis, so excluding any growth effects, the cost of this tax bill would be $1.4 trillion (£1 trillion) in lost revenues over 10 years. The JCT estimates that the package would raise the level of GDP by only 0.8 per cent over 10 years relative to otherwise. This implies a net long-term hit to the public finances of around $1 trillion. Presuming other US taxes are not going to be hiked to compensate, this hole would need to be filled by either additional state borrowing or lower public spending. Given one of the largest items of US public spending is healthcare subsidies for the poor, it is the less well-off Americans who stand to lose most from the latter.

RBI keeps key rates unchanged, raises inflation forecast

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The Reserve Bank of India in its fifth bi-monthly policy review of the fiscal year announced on December 26, 2017 that it is keeping the key interest rates unchanged at 6%. The RBI also maintained its projection for FY18 real GVA (Gross Value Added) growth at 6.7 per cent, saying the risks are evenly balanced. The central bank’s decision to keep REPO rate unchanged was in line with the consensus estimate. A total of 52 of 54 economists surveyed by a Reuters poll had expected a status quo on the policy rate. The policy rate still stands at a seven-year low. The committee had last cut the key lending rate by 25 basis points in August this year.

 The six-member Monetary Policy Committee (MPC), which is headed by RBI Governor Urjit Patel, raised the inflation forecast to 4.3-4.7% in the third and fourth quarters of the current fiscal. Mr. Patel said the MPC took into account the “upward pressure on food and fuel prices”. He noted that there has been significant resource mobilisation in the primary capital market.  He also revealed that the central bank would rationalise merchant discount rates to widen the network of merchants using point-of-sale terminals. The REPO rate is the short-term lending rate. It is notable that 5 of six MPC members voted in favour of a status quo.  MPC member Ravindra H. Dholakia had voted for a policy rate reduction of 25 basis points. The RBI’s policy stance was in line with expectations, maintaining a word of caution on the upside risks emanating from high commodity prices, global financial instability, HRA related increases, rising input costs and fiscal slippages.

Indian Lionesses won as many as five gold medals in the Women’s World Youth Boxing Championships 2017

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Women’s World Youth Boxing Championships 2017 took place in Guwahati ( November I9-26). The Four boxers from Haryana – Nitu in light flyweight (45-48 kg), Jyoti in flyweight (51 kg), Sakshi in bantamweight (54 kg) and Shashi Chopra in featherweight (57 kg) – won gold in the first four final bouts. Assam’s Ankushita Boro added the fifth in welterweight (64 kg) category.V Two other Indians – Anupama in light heavyweight (81 kg) and Neha Yadav in heavyweight (+81 kg) –won bronze. Of the 36 other nations that participated, Russia was the next best team with two gold medals —Anastasia Shamonova in middleweight (75 kg) and Kristina Tkacheva in heavyweight.

Ajay Singh, president of the Boxing Federation of India, later announced R2-lakh each for the gold medal winners.This is India’s best performance in the AIBA women’s youth event after 2011 when Sarjubala Devi of Manipur had won the lone gold medal.

Background

In India, the game of boxing does not command a significant fan following, which commentators often attribute to the lack of discernible international victories. However, despite its limited success at large global championships, it is a regular medal-holder at the Asian Games and Commonwealth Games. Mohammad Ali Qamar became the first Indian to win a gold medal at the 2002 Commonwealth Games in Manchester, United Kingdom. At the 2008 Beijing Olympics, Vijender Singh won a bronze medal in the middleweight boxing category, while Akhil Kumar and Jitender Kumar qualified for the quarterfinals. Akhil Kumar, Jitender Kumar, A.L. Lakra, and Dinesh Kumar each won a bronze medal at the 2008 World Championship. Vijender Singh briefly reached World No.1 in the middle weight (75 kg) category class in 2009, when the International Boxing Association’s (AIBA) list was updated after 2009 AIBA World Boxing Championships held in Milan, Where he won India’s first medal in an AIBA-WBC. On 29 June 2015, Vijender Singh bid adieu to his amateur career by turning professional as he signed a multi-year agreement with Queensberry Promotions through IOS Sports and Entertainment. This ruled him out of 2016 Olympics as he no longer remains eligible to represent India. India’s Mary Kom is a five-time World Amateur Boxing champion, and the only woman boxer to have won a medal in each one of the six world championships. She also became the first Indian woman boxer to get a Gold Medal at the Asian Games during the 2014 Asian Games at Incheon, South Korea. Five Indian boxers, three female and two male, were among the world’s top three in AIBA latest world rankings (March 1, 2014) in their respective categories.

Outcomes of APEC Summit 2017

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The Asia-Pacific Economic Cooperation (APEC) Summit was held in Da Nang, Viet Nam (November 6-11, 2017). Amid the fast changing geostrategic context and domestic situation in a number of countries, APEC Summit was marked by commitment to free trade and globalization despite US president Donald Trump’s reservation. It was the culmination of year-long hosting of APEC meetings in Vietnam. It marks the second time Vietnam was playing host to the APEC, having hosted the event previously in 2006. Earlier, a Round Table Meeting with the theme, “Stronger Joint Action for APEC’s Shared Vision”, had been held in Hanoi in December 17, 2015 by the Vietnamese Ministry of Foreign Affairs to discuss preparation efforts for the 2017 APEC Summit. This was the first APEC meeting for United States President Donald Trump, South Korean President Moon Jae-in, Hong Kong Chief Executive Carrie Lam, and New Zealand Prime Minister Jacinda Ardern, since their inaugurations on 20 January 2017, 10 May 2017, 1 July 2017 and 26 October 2017, respectively. Apec brings together 21 economies from the Pacific region – the equivalent of about 60% of the world’s GDP.

The Da Nang Declaration

The 2017 APEC Summit in Vietnam officially wrapped up with the Da Nang Declaration, which reiterated the commitment of the 21 economic members to multilateral trade that fosters inclusive growth and reaffirmed their confidence in the forum’s ability to tackle future challenges together. The declaration, coming at the conclusion of the Summit, themed “Creating New Dynamism, Fostering a Shared Future”, reaffirmed leaders’ long-standing commitment to APEC’s mission of fostering sustainable economic growth and prosperity in the Asia-Pacific region. According to many experts, the Da Nang Declaration expresses a new vision for APEC, establishes new directions to create growth momentum for the region, and maps out new directions for APEC economies in the future.

The 2017 APEC under the host of Viet Nam proposed four areas for cooperation: a) sustainable, innovative and inclusive growth; b) regional economic integration and connectivity; c) dynamism for micro, small, and medium-sized enterprises (MSMEs) — a key driver of the region’s growth; and d) food security and achieving sustainable agriculture. Topics of discussion also included improving work force skills to meet the new demand for the fourth industrial revolution, reducing income gaps and, and promoting inclusive and equitable development. The Danang Declaration — unanimously adopted at the Summit — reaffirmed all these and called them “long-standing commitments” by all member economies. Similarly, the dramatic revival of the Trans Pacific Partnership Agreement talks (now changed to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) after intensive negotiations in Danang has helped tighten an embrace of “high-stardard”, “balanced” “free”, and “fair” game of trade for concerned stakeholders. Chinese President Xi Jinping also drew a lot of attention because the meeting took place not long after China’s 19th Party Congress. The region wanted to know Beijing’s major policy lines for the new term as could be seen in President Xi’s numerous sideline meetings, and Vietnam was the first foreign country President Xi visited. Russia, Japan, Canada, South Korea, and Australia (an APEC founding member) certainly took APEC seriously with their respective agreement on the host country’s proposed agenda. As for ASEAN, with the presence of Secretary General Le Luong Minh, it was able to seize the opportunity to cement its solidarity and the working principles that have brought about its successes in the last five decades.

Another highlight of the 2017 APEC Summit was the commitment to and innovative ideas for global growth. The APEC CEO Summit was a great success, with speeches given by leaders of APEC economies, including US President Donald Trump and Chinese Party General Secretary and President Xi Jinping, as well as leaders of leading local and global economic groups and representatives from major international economic institutions.

CPTPP

Ministers of the eleven remaining signatories to the TPP agreed on “core elements” of a new trade pact, to be implemented without the US. The agreement will now be called the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). While the “TPP-11” accord was not endorsed by leaders, as expected, ministers said the new name reflects a focus on inclusive growth.

APEC and ASEAN

At the APEC Summit, for the first time ASEAN leaders had a dialogue with APEC members’ heads of delegation. This is a testament to both ASEAN and APEC’s continued aspirations for a wider community of cooperation. APEC, like ASEAN, constitutes a significant building block for the region’s deeper integration and connectivity. ASEAN has endeavored to keep its centrality in the regional architecture, one with values shared by APEC, such as open regionalism and inclusiveness.

Vietnam remakes its image

For Vietnam APEC Summit culminated in creating a brand image. President Xi congratulated Vietnam on successfully organizing the 2017 APEC Summit and highly appreciated the results of the conference in promoting regional and global development.President Trump said he was impressed by the sincere sentiments and warm welcome of the people of Da Nang and Hanoi, and asked Prime Minister Nguyen Xuan Phuc to thank the Vietnamese people.  The achievements not only express Vietnam’s new role in the international community but also show that APEC continues to be a leading regional economic cooperation mechanism that initiates and promotes cooperation, connectivity, and intellectual convergence in the region and the world.

This success is reflected in the participation of major international organizations such as the International Monetary Fund (IMF), the World Bank, the Organization for Economic Co-operation and Development (OECD), and the Asian Development Bank (ADB). A number of senior analysts and commentators participated at the event and contributed significantly to its success.

More than 21,000 delegates took part in the 243 activities held during APEC Year 2017 in Vietnam. The APEC Economic Leaders’ Week alone attracted about 11,000 delegates, Mr. Minh said, adding that these figures reflect the world and the region’s great attention to APEC.

Relevance of APEC

APEC is the premier forum in the region to facilitate the realization of the development goals set forth by the United Nations. Home to around 2.8 billion people, approximately 59 percent of world GDP and 49 percent of world trade, APEC includes the world’s biggest economies, such as the US, China, Japan, ASEAN, and thus has the potential to make important economic contributions to the region — and the world. APEC could help to promote economic development in the region in many important ways. Even though the Asia Pacific is the fastest-growing region at a time when the world economy is witnessing positive growth, there are lurking risks such as inward-looking policies of many countries, aging populations, as well as traditional and emerging security challenges.

 

Differences between the US and China

On 09th November 2017, Ministers from Asia-Pacific countries ended amid differences on the issues like trade and protectionism. Foreign and trade ministers of 21 Pacific Rim economies meeting in Vietnam extended their talks for an extra day Thursday as they struggled for a consensus on open markets and other strategic issues ahead of a regional summit. The problem arose because of insistence of the US on changes to the language used concerning issues such as free trade and protectionism. In a speech in the Vietnamese port city of Da Nang on November 10, President Trump railed against the World Trade Organization, which sets global trade laws, and said it “cannot function properly” if all members do not respect the rules. He complained about trade imbalances, saying the US had lowered market barriers and ended tariffs while other countries had not reciprocated. He further said that such practices hurt many people in the US  adding that free trade had cost millions of American jobs. But he did not lay the blame on Apec countries, and instead accused earlier US administrations of not acting earlier to reverse the trend. He said America would make bilateral agreements with “any Indo-Pacific partner here who abides by fair reciprocal trade”, but only “on a basis of mutual respect and mutual benefit”. Since taking office, President Trump has pursued his “America First” agenda and pulled the US out of the regional Trans-Pacific Partnership – a major trade deal with 12 Apec nations – arguing it would hurt US economic interests.

In contrast, President Xi said globalisation was irreversible. Speaking minutes after his American counterpart, Chinese President Xi Jinping took to the podium to espouse his country’s credentials as the new champion of world trade. Globalisation, he said, was an “irreversible historical trend” but the philosophy behind free trade needed to be repurposed to be “more open, more balanced, more equitable and more beneficial to all”. In contrast to President Trump, the Chinese leader defended multilateral trade deals, which he said helped poorer nations to benefit. He said, “We should support the multilateral trading regime and practise open regionalism to allow developing members to benefit more from international trade and investment.”

Conclusion

President Trump was clear – he wants bilateral trade deals and large, multilateral arrangements don’t work for him. This was a speech saying that America is open for business, but on America’s terms. Contrast that with China’s Xi Jinping, who spoke about the digital economy, quantum science, artificial intelligence – presenting a vision of the future that is connected, and comprehensive.

Increasingly these days Mr Xi appears as the poster child for free trade and globalization on the international stage, but ironically China itself has yet to become a fully free economy. On the other hand, the US was the architect of many of the multilateral and free trade agreements for Asia. Under its tutelage, many of these countries opened up and reformed – playing by America’s rules. But under Donald Trump, that role has gone into reverse. This has left China with a gaping hole to fill – and one it is only more than happy to take on (BBC).

Despite differences, the 2017 APEC Summit presents a key medium for regional stakeholders to tackle current problems and promote better understanding. APEC’s consensus-based approach, broad inclusiveness, and efficient platform for numerous multilateral and bilateral meetings make the venue important. Cooperative programs within the APEC framework may be either substantive or symbolic, but given all the present challenges and needs, both are valuable for the region (Ley Dinh Tinh, huffington post).

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