Comment by Riaz Haq on June 5, 2017 at 7:33am

Global Growth Set to Strengthen to 2.7 percent as Outlook Brightens
June 4, 2017

http://www.worldbank.org/en/news/press-release/2017/06/06/global-gr...

South Asia. Regional growth is projected to remain
strong, at 6.8 percent in 2017. India is recovering from
the temporary adverse effects of the end-2016
withdrawal of large-denomination currency notes.
Elsewhere in the region, growth in Pakistan is
accelerating this year, largely driven by robust domestic
demand and improved foreign direct investment, while
activity in Bangladesh is moderating, reflecting a
pullback in domestic demand and in industrial
production. Regional growth is expected to firm in
2018-19, reaching an average of 7.2 percent, supported
by robust domestic demand, an uptick in exports, and
strong foreign direct investment. The regional outlook
has been slightly revised down from January, reflecting
a more protracted recovery in private investment in
India than previously expected. Risks to the outlook are
tilted to the downside and include reforms setbacks,
geopolitical tensions, and policy uncertainty. 

Regional output expanded by an estimated 6.7
percent in 2016, despite temporary disruptions
associated with the November withdrawal and
replacement of large-denomination currency notes
in India, the region’s largest economy (Table
2.5.1). In general, South Asian economies
benefitted from an improvement in exports, low
oil prices, infrastructure spending, and supportive
macroeconomic policies last year. In India, activity
was underpinned by favorable monsoon rains that
supported agriculture and rural consumption, an
increase in infrastructure spending, and robust
government consumption (World Bank 2017l). In
Pakistan, agricultural output rebounded following
the end of a drought, while the successful
completion of an IMF-supported program
enhanced macroeconomic conditions and foreign
direct investment (FDI). Nepal’s economy
suffered from lingering effects of the 2015
earthquake and trade disruptions with India
(World Bank 2017m). However, in some
countries, activity in 2016 was set back by a sharp
decline in remittances inflows (e.g., Bangladesh;
World Bank 2016g), inclement weather
conditions that reduced agricultural output (e.g.,
Sri Lanka), and security challenges (e.g.,
Afghanistan). 

A pickup in regional growth is underway in 2017.
In India, recent data indicate a rebound this year,
with the easing of cash shortages and rising
exports (World Bank 2017l). An increase in
government spending in India, including on
capital formation, has partially offset soft private
investment. While manufacturing Purchasing
Managers’ Indexes have generally picked up,
industrial production has been mixed (Figure
2.5.1). In Pakistan, favorable weather and
increased cotton prices are supporting agricultural
production, and the China-Pakistan Economic
Corridor infrastructure project, as well as a stable
macroeconomic environment, is contributing to
an increase in private investment. 

Regional growth is
forecast to increase to 6.8 percent in 2017 and to
strengthen to an average of 7.2 percent in 2018-
19, reflecting a solid expansion of domestic
demand and exports (Figure 2.5.2). Excluding
India, regional growth will remain broadly stable
at an average of 5.8 percent in 2017-19, as easing
growth in Bangladesh and Nepal offset gains in
Bhutan, Pakistan, and Sri Lanka. 

A number of downside risks continue to cloud the
outlook. Setbacks to the assumed pace of
structural reform would impede the unlocking of
supply constraints, dampen productivity growth,
and hold up integration into global value chains.
This would hurt the business environment,
reducing investment and FDI inflows to the
region (IMF 2017d, 2017e). Security concerns in
some countries (e.g., Afghanistan, Pakistan) could
also hold back investment and business
confidence.

Comment by Riaz Haq on June 5, 2017 at 9:44am

Forget GDP, worry about the financial state of our states

June 4, 2017, 12:02 AM IST Nalin Mehta in Academic Interest | Economy, India | TOI

http://blogs.timesofindia.indiatimes.com/academic-interest/forget-g...

While all attention has been focused on Modi sarkar, many of our states have been borrowing money like there is no tomorrow. Reserve Bank of India (RBI) recently reported that the debt-to-state GDP ratio of as many as 17 Indian states increased in the past year. For all states taken together, this ratio hit an alarming 3.6% in 2015-16 (breaching the mandated 3% ceiling under fiscal prudence rules) for the first time in 10 years. As RBI put it, “The consolidated finances of states has deteriorated in recent years…information on 25 states indicates that improvement in fiscal metrics budgeted by states for 2016-17 may not materialise.”
This matters because it is state governments that really control most things that touch us directly — from land, electricity and water to schools, hospitals and state highways — and when foreign investors see India they don’t just see the central government but the combined health of the Centre and the states.
So, which states have a real problem with managing their money? Uttar Pradesh is a big challenge for newly minted CM Yogi Adityanath, with its gross fiscal deficit to gross state domestic product ratio in 2015-16 going up to 5.6% (up from 3.1% the previous year). For Rajasthan, this ratio is a whopping 10% (up from 3.1%), Haryana 6.3 %(up from 2.9%), Bihar 6.9% (up from 3%), Madhya Pradesh 3.9% (up from 2.4%) and Goa 6.8% (up from 2.3%).
Why does this matter to anyone other than accountants? Crudely put, the more a state borrows, the more it must pay back each year with interest — somewhat like your annual house EMIs — leaving lesser money to spend on development spending. This partly explains why 17 major states in the current financial year, according to a study quoted in TOI this week, have budgeted for a 10.8% rise in spending (compared to 19% last year) making it the slowest pace of increase in 13 years.

Comment by Riaz Haq on June 7, 2017 at 7:52am

#California Signs #ClimateChange Agreement With #China after #Trump's #ParisAccord pullout via @IFLScience:

http://www.iflscience.com/environment/california-signed-climate-cha...

The rebellion is in full swing, and it seems the Paris agreement was the catalyst.

First came the Climate Alliance, a bipartisan group of Governors determined to uphold the pact despite the actions of the Executive Branch. Then came “We Are Still In,” a coalition of US states, businesses, and cities – representing one-third of the American population – that told the UN that they are still abiding by Paris.

Now, Governor Jerry Brown of California, one of the co-chairs of the Climate Alliance, has taken this one shocking step further. During his current tour of China, and shortly before meeting with President Xi Jinping, he signed an agreement with China that would see the rising superpower and the Golden State work together on cutting their greenhouse gas (GHG) emissions over time.

From renewable energy technologies to zero-emission vehicles, from low carbon infrastructures to electricity efficiency savings, both China and California will work closely together. A working group of top-level officials from both sides will continually plot ways to cooperate on climate measures and to zero in on initiatives that will help both countries cut their carbon footprints.

China has already shown over the last couple of years that it is serious when it comes to climate change mitigation. Although far from perfect, the world’s most prolific GHG emitter is investing heavily in wind, solar, and nuclear power and its coal production has reached a plateau. Ambitious, enormous clean energy projects by state-owned corporations are underway across the globe.

In this respect, California – a progressive pioneer in clean energy since the 1980s, and home to nearly 40 million people, more than most countries – is China’s natural ally on the subject. The two may disagree about many other things, but on their frustration with the President, and their work on climate change, they have mutual goals.

Upon signing the agreement early today with Wan Gang, the Chinese minister for science and technology, Brown reminded the world that the power of states should not be underestimated.

“California is the leading economic state in America and we are also the pioneering state on clean technology, cap and trade, electric vehicles and batteries, but we can’t do it alone,” Brown said before a Chinese delegation.

Secretary of Energy Rick Perry was also at the meeting in Beijing. Despite quietly hoping that the President would stay in the Paris agreement, he’s happily going along with Trump’s decision to withdraw. This surprise announcement by Governor Brown must have come as quite a shock to him.

This is nothing short of a powerful rebuke to Trump, and Brown knows it. It’s increasingly looking like it’s not America alone on the world stage – it’s the President.

Comment by Riaz Haq on June 20, 2017 at 11:00am

Can #Pakistan’s Banned Organizations Rejoin the Mainstream? #JuD #JeM #ASWJ @Diplomat_APAC http://thediplomat.com/2017/06/can-pakistans-banned-organizations-r... 

“Though Jamat-ud-Dawa (JuD) is not listed as a political organization but it is a political entity, we want to register JuD as a political party. We played a positive role in the politics and we want to continue it,” said Hafiz Masood in Islamabad on March 27 this year.

Masood, brother of JuD chief Hafiz Muhammad Saeed, was speaking in a closed-door session on “Rehabilitation and Reintegration of Different Brands of Militants.” The discussion, organized by the think tank Pakistan Institute of Peace Studies (PIPS), centered on the reintegration of banned outfits like Jamat-ud-Dawa (JuD), Jaish-e-Muhammad (JeM), and Ahle-Sunnat Wal Jamaat (ASWJ).

Later, during a press briefing on April 26, the spokesman of the Pakistan Army, Major General Asif Ghafour, released a confessional video statement from Ehsanullah Ehsan, the former spokesman of the banned Jamat-ul-Ahrar (JuA), a splinter group of Tehreek-e-Taliban Pakistan (TTP).

In April last year, he handed over two deradicalization plans to Nawaz Sharif, prime minister of Pakistan. The first proposal was to be implemented through the Ministry of Interior (MoI) and the other was under the National Counter Terrorism Authority (NACTA). There was a role assigned to at least six different government departments in the proposed plan.

The proposal was to segregate different kinds of extremist on the basis of their history and nature of involvement in militancy. Some individuals are associated with the welfare work of banned outfits and some are part of the propaganda arm, while others actually take up arms against the state. Therefore, each individual would be reviewed according to his level of involvement in militant activities.

Pakistan is not the only country trying to develop a mechanism to rehabilitate militants. Deradicalization plans for repentant militants already exist in the Muslim world. Saudi Arabia, the United Arab Emirates, Bangladesh, Malaysia, Indonesia, Yemen, Morocco, and Jordan adopted such plans much earlier. Pakistan has another significant example: neighboring Afghanistan, where Hezb-i-Islami has announced it will shun violence and join mainstream politics in the country. The United Nations lifted its ban on the Hezb-i-Islami chief, Gulbuddin Hekmatyar, in February this year. The historic move was a result of a deal that was brokered between the Afghan government and Hekmatyar.

Pakistan is also running at least two deredicalization centers – Sabaon and Mashal – in the Sawat area of Khyber Pakhtunkhwa province.

Explaining the rationale of new proposed deredicalization program, retired Lt. Gen. Amjad Shoaib said that in January 2004, under orders from General (retd.) and then-President Pervez Musharraf, camps of banned outfits were dismantled and the militants were flushed out. It was a big blunder; for two years these men had been motivated and trained to wage jihad and then suddenly they were asked to vacate the area. “Those elements perceived that Pakistan betrayed the cause of Kashmir and [that’s when] Punjabi Taliban was formed. At that time nobody thought of starting a deradicalization program,” Shoaib explained.

Shuja Nawaz, a fellow at the Washington, DC-based South Asia Center of the Atlantic Council does not see rapid movement toward these goals given the lack of careful consideration of the deradicalization and de-weaponizing of Pakistani society. He believes that ties between these shadowy jihadi groups and the political system prevent firm actions. Nawaz, who author of the book Crossed Swords: Pakistan, Its Army, and the Wars Within, says, “Mainstreaming can only occur when wider actions alter the school systems and curricula and to remove the vestiges of Ziaist [referring to General Zia-ul-Haq] policies and systems in both the civil and military are effected. That needs political gumption, a rare commodity in Pakistan today.”

Comment by Riaz Haq on June 30, 2017 at 7:48am

#India and the Visible Hand of the Market. #Modi #Demonetization #Deflation #Onion #Potato #BlackMoney

https://www.nytimes.com/2017/06/29/opinion/india-and-the-visible-ha...



Nearly eight months later (after demonetization), a lot of data is now available to help us assess what demonetization has actually wrought. Here it is, in a word: Demonetization failed to do what it was supposed to do, and although the immediate disruption it caused was less severe than feared at first, the policy’s impact is turning out to be more protracted than initially expected.

Very little black money has been caught. The truly corrupt hold their black money not as money at all, but as real estate and bank balances abroad. The government had authorized people to trade in up to 4,000 rupees in the canceled notes, so some parceled their 500- and 1,000-rupee bills into small bundles and got multiple agents (“money mules”) to change them, no questions asked. The government’s freshly minted 2,000-rupee notes promptly became the new stash currency of choice.

In the first weeks, even months, following demonetization, there was visible chaos. Soviet-era-style queues snaked in front of banks and A.T.M.s. The informal sector — mostly small traders, farmers and small unregistered businesses, which often don’t have bank accounts — reeled from cash shortages. But the immediate damage caused, though large, was not as large as some of us had feared. G.D.P. growth in the last quarter of 2016 was 7 percent and manufacturing activity continued to grow.

On the other hand, there may be greater long-term side effects than expected.
The problems appeared unexpectedly, when agricultural products arrived on the market. In January, with cash shortages in full swing, demand plunged and food prices collapsed. By February, potato prices in Uttar Pradesh were just over half of what they had been during most of 2016 (at around 350 rupees per quintal, instead of over 600 rupees per quintal). Tomato prices were less than one-third. Onion prices in May were half of what they had been a year before. The cost of onions in India is notoriously volatile — and often influenced by politics and elections — but the likeliest culprit for this year’s drop was demonetization.

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An economy is a complex machine, and there is no way to be absolutely certain that the cause of all this is demonetization. But there is a telltale sign: Much of the slowdown originated in the financial sector. Rural loans increased by only 2.5 percent between October 2016 and April 2017, compared with 12.9 percent a year before. The rate of growth in overall bank credit declined.

The growth in industrial output in April was a paltry 3.1 percent, down from 6.5 percent the previous April. In the first quarter of 2017, the construction sector actually shrank, by 3.7 percent, over the previous quarter.

All this augurs poorly for the months to come: As the agriculture sector slows down in response to low crop prices and the credit shortage begins to bite, overall growth will likely fall further. The state-engineered shock of demonetization will continue to course through the economy.

Demonetization did boost the use of digital money, which is more efficient than paper money. But the government didn’t need to put 86 percent of the currency out of circulation to achieve that. Demonetization was too coarse an approach, and it accomplished too little while causing too much collateral damage.

Comment by Riaz Haq on December 13, 2018 at 8:08am

The Cost of a Modi Victory
A compliant central bank might bolster the Indian prime minister’s reelection chances, but at the expense of the country’s long-term prospects.

By Mihir Sharma

https://www.bloomberg.com/opinion/articles/2018-12-13/cost-of-modi-...

Many of us have long argued that, whatever its problems, India is one of the best long-term bets in the world for one simple reason: It has the sort of world-class institutions that can help build and sustain a genuine market economy. Sadly, many of those same institutions are being undermined by the country’s own leaders — most recently the Reserve Bank of India, which Prime Minister Narendra Modi appear intent on subjugating as part of his bid for reelection. Of all people, Modi should recognize that no election victory is worth giving up on India’s best chance at becoming a world-beating economy.

For Indians who share that ambition, it’s been a sobering week. Late on Monday night, news broke that central bank governor Urjit Patel had quit. The news was particularly shocking because it followed a lengthy campaign by the government to bend India’s independent central bank to its will. The Finance Ministry had demanded a series of concessions from the governor – that the RBI stop forcing state-controlled banks to crack down on some big delinquent borrowers, for example. It believed that the central bank was also being too sparing with liquidity: Recent GDP numbers suggest a slowdown in demand, partly caused by a seize-up in India’s shadow banking sector. These “non-banking financial companies,” to use the official Indian term, are crucial lenders to infrastructure and to the small- and medium-sized enterprises Modi hopes will create jobs for his voters.


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It’s the sort of institutional regression that we haven’t seen for decades. No RBI governor has had to quit in the two-and-a-half decades since India began to liberalize its economy; the history of India’s central bank has been one of ever-increasing autonomy. This is particularly important given that India’s a noisy democracy, with a half-dozen elections a year and politicians who want to win each of them. The RBI’s long-term view and evidence-based policymaking provided a crucial counterweight.

That was the sort of governance that many hoped Modi himself would provide when he won a landslide in 2014. Such political capital, they argued, would allow him to keep his eye on what really mattered instead of worrying about day-to-day survival in power. And perhaps that was true at first: The Modi government itself seemed to cap the RBI’s progression to true independence early in its term when it legislated an official inflation target for the bank, freeing it further from New Delhi’s control. In partnership with someone like Rajan, Modi could have provided the kind of sober and effective economic management that would have shifted India permanently to a high-growth trajectory.

Now, Modi’s India looks like a lot more like any other emerging economy, with a tame central bank and a profligate government that wants to ignore the laws of economics. Modi won once by promising world-class governance. Why does he think voters will reelect him for anything less? 

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