Warrier's Collage 21022021: Excerpts

Welcome to Warrier's Daily COLLAGE Sunday February 21, 2021 Vedanta through 5 Parables https://youtu.be/BMRbh3M4AGw (Sarvapriyananda @ Vedanta Society of New York) (Link selection: M G Warrier) Good Morning Nice Day M G Warrier M 134 A Interaction 1) K Ramasubramanian Mumbai "In olden days food is never wasted. It reached the humans duly. One may recall there was a system of Raapichai. They will come around 9 p.m. in villages and shout : "Amma Pichai". The leading house lady will offer the residual food to such people. Further, if he does not come we pour water in rice and use it next breakfast. The watering of the cooked rice will be only after the last bus has crossed our street. Broader outlook and the principle of "Do not waste Food" were "holy values" (Really. I'm also heir to a tradition of respecting food. My father used to pray before taking food and say "Annadaata Sukhee Bhava" (Let the giver of food remain blessed and happy) before folding up the plantain leaf in which food was served. He never allowed a single grain of rice to go waste and trained us to accept the quantity of food which we needed, and specifically, only as much as we were able to consume. That training helped me to control the temptations when good and delicious food was served in training institutions like Staff College, RBI Executive Lounge on 25th Floor of Central Office Building and in Star Hotels in India and abroad 🙏-Warrier) Ramasubramanian adds: "Thank you. Our generation finds it difficult to pass on the traditional values due to the changing lifestyle of the next generation and their compulsions of modern age practices. We have to adapt instead of pressurising them to change. Life is never constant but constantly changing. Get always ready to change." (Collage View: पुराणमित्येव न साधु सर्वं न चाऽपि काव्यं नवमित्यवद्यम्। सन्तः परीक्ष्यान्यतरत् भजन्ते मूढ्ः परप्रत्ययनेयबुद्धिः ॥ -मालविकाग्निमित्रम् (महाकवि कालिदास) English Meaning of Sanskrit Phrase: All poems are not good only because they are old. All poems are not bad because they are new. Good and wise people examine both and decide whether a poem is good or bad. Only a fool will be blindly led by what others say. -Malavikaagnimitram (Great Poet Kaalidaas) 2) V Babusenan Thiruvananthapuram Continuing Smile, Please... "If there lived one Sardarji who was a depository of Sardarji jokes and who relished in telling them, it was the late Khushwant Singh. Here is one of his jokes: The Sardarji, who was a cabinet minister, was about to leave his official residence to attend a cabinet meeting. He found, to his dismay that heat had played havoc with the garden in front of the residence. He called the gardener and said:"Malee, haven't you seen the plight of the flowering plants in the garden? It seems you are not doing your duty properly. From today, you must water all the plants. I will check when I come back in the evening. If there is any lapse, I will take you to task. Now you may go." In the evening when the car entered the gate, the minister sighted the gardener. He beckoned him and asked gravely: "Did you water all the plants in the garden today?" ''No, Saheb." He replied. "Why?" "It rained heavily, Saheb." "What an excuse! I'm not going to spare you this time. You should've taken an umbrella." B Collage Debate On borrowing and spending for growth Here are some views which counter the position taken in my article on Budget 2021-22 published in The Global ANALYST February 2021: How things change! In just one decade, fiscal austerity has gone from being a virtue to a vice. The IMF, which used to hold fiscal austerity as gospel, has since buried that faith. It now urges countries, at any rate the rich ones, to borrow and spend generously – not just for their own good but also for the good of the rest of the world. Here in India, the turnaround in the world view has been even swifter. We routinely berated our finance ministers for being spendthrift and blamed fiscal irresponsibility for all our macroeconomic problems. But when Nirmala Sitharaman announced a big borrow and spend programme in the last Budget, she was widely acclaimed for her boldness and sense of responsibility. Uday Deb The FM didn’t say anything about debt sustainability, budgeted a higher than expected deficit of 6.8% of GDP for the coming year, and opted for a slower than expected medium term fiscal consolidation path. Yet, even staunch fiscal hawks thought that was par for the course. What explains this astonishing shift in economic orthodoxy? Why has the fear that mounting debt is a sure-fire route to disaster given way to such nonchalance? No, it’s not economics that has changed; what’s changed is the real world to which economics applies. And that change predates the coronavirus. In rich countries, the fundamental real-world change goes under the name of secular stagnation, a condition caused by structural factors such as ageing populations, rising inequality and slowing productivity. Older people who expect to live longer spend less per capita, as do low income households who don’t see their economic prospects improving. As people consume less and save more, investment opportunities decline and the economy goes into a low growth, low inflation syndrome of secular stagnation. Central banks respond to this downturn by cutting interest rates to zero or even making them negative. When people’s confidence about their economic prospects is low, even that doesn’t help. As they say it’s like ‘pushing on a loose string’. The solution then, it’s argued, lies in governments taking advantage of low interest rates to borrow and spend. In a low interest rate scenario, the multiplier effect of spending will be so high that public debt, far from exploding, will actually pay for itself. Does this logic apply to emerging markets, India in particular? Certainly not. Our structural factors are totally different. With a median age of 29 our population is young, our economy is consumption driven and inflation prone. Far from secular stagnation, any increase in incomes here quickly translates to consumption. And if production falls short of demand as it often does, we get inflation. We differ from rich countries in terms of public finance dynamics too. In rich countries, interest payments are just a small proportion of total government spending and that fraction is declining. In India, because of accumulated debt, interest payments are the single biggest item of government expenditure and eat up more than 40% of total revenues, leaving that much less for spending on growth enhancing sectors like education, health and infrastructure. So, how much debt is too much? If one works through the algebra, it will turn out that two conditions have to be met for debt not to explode. The economy’s growth rate has to be higher than the interest rate on the debt; second, the government must be collecting enough in taxes such that it’s borrowing, if at all, only for paying the interest on debt. In India, we meet the first condition but are far from meeting the second. This vulnerability pegs our sustainable debt at a low level. After working through the feedback loops, the FRBM Committee determined our sustainable debt as 60% of GDP. As against that, it’s estimated our debt will rise to 90% of GDP by the time we exit the corona crisis. It’s this high level of debt and the low probability of tax revenues rising sufficiently to bring the debt ratio down that will weigh with rating agencies as they evaluate our medium-term prospects. Can we be nonchalant about rating agencies’ judgment? Unfortunately, not. Ratings matter in shaping market perceptions, and adverse perceptions feed on themselves and spiral into self-fulfilling prophecies. History is evidence to this. In his influential books on depression economics, Nobel laureate Paul Krugman says that leading into the 1990s Asian financial crisis Australia, a rich country, and the Asian economies, all of them emerging markets, had a similar risk build up. But the markets allowed Australia to make a smooth adjustment and avert a crisis, even as they denied a similar privilege to the Asian economies and pushed them into a devastating crisis. The short point is that markets are much less forgiving of policy excesses by emerging markets. It’s unfair but true. For sure, going into the Budget, the FM was locked into an ‘impossible trinity’ of sorts. She had to spend more, not raise taxes and keep borrowing under check. Something had to give, and she chose to breach the borrowing limit on the calculation that the additional debt financed expenditure will generate rapid growth such that the debt will pay for itself. That outcome is plausible but not inevitable. Our growth prospects and hence our debt sustainability depend critically on private investment pouring in. For that to happen, we need a lot more things to fall in place than just a well-crafted and well-intentioned Budget. If today’s debt financed spending does not generate rapid growth, the burden of debt repayment will pass on to our children through higher taxes. We don’t want to sin against our children! (Brief responses are welcome 🙏-Collage)


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