Posts Tagged ‘Indian Economy’

Should Air India be Sold?

Thursday, April 5th, 2018

Should Air India be Sold?


Col (Retd) Bhaskar Sarkar VSM

The Government of India has announced that it is ready to sell 76 percent stake in Air India and has called for “Expression of Interest” (EOI). The move has been welcomed by the neo-liberal economist lobby. Only Trina Mool Congress has protested the decision. Congress and the other opposition political parties seem to be sleeping on the issue. This article seeks to lay some facts regarding Air India before my learned readers so that they can decide for themselves if selling Air India is in the best interest of the country.

Some Facts about Air India

Air India is the flag carrier of India. It is owned by Air India Limited, a government-owned enterprise. It flies to 90 destinations including 60 international destinations all over the world. Air India is the largest Indian international carrier with about 18 percent market share. It is the third largest domestic airline in India in terms of passengers carried after Indigo and Jet Airways with a market share of about 14 percent as of July 2017. The airline became the 27th member of Star Alliance on 11 July 2014.

The airline was founded by the legendary Mr. JRD Tata as Tata Airlines in 1932. After World War II, it became a public limited company and was renamed as Air India. It was a profitable air line till 2006. Air India also operates flights to domestic and Asian destinations through its subsidiaries Alliance Air and Air India Express. Until 2007, Air India mainly operated on international long-haul routes while Indian Airlines operated on domestic and international short-haul routes. In 2007, Air India and Indian Airlines were merged under Air India Ltd.

The airline has 140 planes including 43 owned Airbus A320s and 15 owned Boeing 777s that can fly non-stop to the US and Europe. It also has nearly two dozen brand new Boeing 787 Dreamliner planes on favourable sale and lease-back terms. Air India and its subsidiaries have nearly 29,000 employees including about 2,000 pilots, 2000 engineers and 4000 cabin crew. Its $150 million aircraft maintenance and repair unit in Nagpur is the only such in the country. It’s the only airline in India that performs major aircraft checks including for rivals like Jet Airways Ltd. It has 33 hangars, compared with rival Jet Airways’ two. It is the only Indian Airline which has its own training facilities with Boeing 777 and 787 simulators.

Financial State and Assets

By March 2011, Air India had accumulated a debt of Rs 42,600 crores. As per report by the Comptroller and Auditor General of India, the decision to buy 111 new aircraft and the ill-timed merger with Indian Airlines was responsible for the poor financial situation. Neither decision was that of the Airline Management. They were taken by the ministry. The government gave Rs 32,000 crores to Air India in March 2012.

In March 2013, the airline posted its first positive EBITDA or operational surplus after almost six years. Its operating revenue grew 20% since the previous financial year. Air India Limited split its engineering and cargo businesses into two separate subsidiaries, Air India Engineering Services Limited (AIESL) and Air India Transport Services Limited (AITSL) in 2013. For financial year 2014–15, its revenue, operating loss and net loss were Rs 19,800 crores, Rs 2,170 crores and Rs 5,410 crores compared FY 2011–12, which were Rs 14,700 crores, Rs 5,138 crores and Rs 7,550 crores. It will be seen that the Airlines revenues are increasing and losses are decreasing.

Air India has lots of assets other than aircraft. It has four slots at Heath Row Airport, London. It sold one in 2014 for $75 million. Thus this asset is worth $ 300 million or Rs 2,100 crores. It has 8 percent share in Air Mauritius, and share in Orange, SITA travels, Cochin International Airport and Aeuronautical Communications of Thailand. It has two Centaur Hotels in Mumbai and Delhi. It has one of the largest collections of contemporary Indian modern art with paintings by M F Hussein and Anjolie Ela Menon. It has huge land holdings; 32 acres in Central Mumbai, a 30 acres housing colony in New Delhi’s Vasant Vihar, a headquarters valued at Rs 1600 crores and villas and apartments in London, Hong Kong, Tokyo and Mauritious.  (Authority Air India Annual Report 2014-15). Some of these assets can be sold to reduce its debt.


The first attempt at privatization was made in 2000-2001 by the BJP but failed. In 2012, a study commissioned by the Corporate Affairs Ministry recommended that Air India should be partly privatized. In 2013, the then-Civil Aviation Minister, Mr. Ajit Singh supported the move. However, the opposition led by the BJP and the CPI(M) opposed the move.

On 27 May 2017, finance minister Mr. Arun Jaitley said Air India, with a mere 14 percent market share, had debt of Rs50,000 crore. To run Air India Indian tax payers have invested Rs 50,000 crore which can be used for other purposes. So he has put a perfectly well run government enterprise for sale to make up for the present governments inefficient tax collection and fiscal management.

The decision to allow 76 percent foreign stake in it can lead to large scale retrenchment of its 29,000 employees. The fear of job losses has been one of the major reasons for various Air India unions to be opposed to the divestment plan. Even Centre of Indian Trade Unions (CITU) and RSS-affiliated Swadeshi Jagaran Manch have opposed the move.

Is Air India’s Debt Abnormal?

Air India’s accumulated debt that stands at about Rs 50,000 crores. Let us examine the debt record of our leading private sector business houses.

India’s largest debtor is Mukesh Ambani’s Reliance Industries (RIL), has a total debt of Rs 1,87,079 crore. It also has the best record of timely paying its interest. So banks are happy to offer RIL loans.

The Tata Group’s consolidated debt was $10.7 billion or about Rs 70,000 crores on September 30, 2015. They are not amongst defaulters.

The Anil Ambani led Reliance Group has a debt of Rs 1,21,000 crores and is a major defaulter. Reliance Communications (R Com), its flagship firm, has a debt of Rs 40,000 crore. It has posted a loss every year since FY 14-15. The company is valued at Rs 13,440 crore, less than a third of its total debt. Reliance Infrastructure (R-Infra) has Rs 25,000 crore of debt. Its market capitalisation is Rs 14,476 crore and is lower than its debt. Reliance Capital has debt of Rs 24,000 crore and in default. The group’s other firms like Reliance Infrastructure and Reliance Defence don’t earn enough to service the interest payment. The Essar group has gross debt of Rs 1,01,461 crore and in default. Its 10mtpa steel business that currently has a debt of Rs 40,000 crore is under the hammer. The Adani Group’s debt stands at Rs. 72,000 crore. Global lenders have backed out from funding the $10-billion coal mine development project in Australia. The Jaypee group’s debt is over Rs 75,000 crore. The group has defaulted on payment obligations worth $350 million and is on the verge of going bankrupt. The GMR group debt was at 47,738 crores at the end of FY 2014-15. The Lanco group has debts of Rs 47,102 crore. The Videocon group has a net debt of Rs 39,600 crore and in default. The GVK group has a debt of Rs 34,000 crore. Jindal Steel and Power Limited has a debts of Rs 46,000 crore. It will be seen that our great Private Sector is making merry with bank funds. Most do not have assets to cover their debts. So what is the problem if Air India has a Rs 50,000 crore debt? It is paying its creditors and cannot run away as Vijay Malaya did or Nirav Modi and thousands of others have done. Money in the banks in India whether equity, deposits or debt belongs mostly to Indians. If Private Sector can use this money with impunity for running their businesses and luxuries, why can public sector companies not do the same? What is the need for selling them?

Rs 11.5 lakh crores of Non Performing Assets (NPAs) are owed by the Private Sector companies to Indian banks. Rs 4.70 lakh crore worth of NPAs were due to loans extended to industry. The debt of Air India is normal for a company of its size. Why should a Public Sector Company be denied funds raised from the Indian public?


Vijay Mallaya loots banks of about Rs 7000 crores and makes merry in London. Diamond dealer Nirav Modi loots a bank of about Rs 12,000 crores and takes off to unknown location ruining thousands of employees and hundreds of franchise and investors.  Our government is not even blinking an eye. Every NPA of the public sector bank is tax payer’s money or money deposited or invested by the ordinary Indian public. Air India cannot run away abroad with its 140 aircraft and thousands of crores of immovable assets. Why target Air India? Why can the government not nationalize all defaulting industries without payment and sell them off and recover the money?

The flip flop by the BJP regarding Air India privatization is mysterious. It wanted it in 2000-01 but opposed it in 2013. It has again initiated it. The Government did not mind spending about Rs 72,000 crores on demonetization (Rs 36,000 crores on printing new notes and Rs 36,000 crores on reduced RBI dividend). Is the government out of money to spend and is desperately selling whatever it can? Or is the Government planning to gift it to a consortium of crony capitalists like Adani Group of Gujarat in return for generous political funding for the 2019 General Elections? Whatever be the reason behind the move, Air India belongs to the people of India and no government has the right to gift it away to a crony capitalist who will borrow from the same banks to finance the purchase and not return the money.

I rest my case. Oh Readers! Please decide whether Air India should be sold. If the answer is no, please do all you can to stop the sale.

Lastly, I would like to express my gratitude to Mrs. Mamta Bannerjee and Trina Mool Congress for opposing the move. I also request Mr. Rahul Gandhi and all other opposition leaders to oppose the proposal in and outside the Parliament. If Indian railways can have budgetary support, if state transport can have budgetary support, if “Gaushalas” for unproductive cows can have budgetary support, when BJP state governments can spend thousands of crores in preparing Unique Identity Cards for cows, bullocks and bulls, why should Air India not get budgetary support? Air India provides subsidized air travel to people of the North East, Andaman Nicobar and Lakhsha Deep Islands. It is available to the Indian Government for emergencies like evacuation of Indians from Kuwait and moving troops from one sector to another in time of war.

Air India is a national asset. It should be freed from political and bureaucratic interference and handed over to competent persons like Capt C D Gopinath. Then it will shine like the other “Navaratnas”.

Has India Progresses Satisfactorily Since Independence?

Sunday, February 25th, 2018

Has India Progressed Satisfactorily Since Independence?


Col (Retd) Bhaskar Sarkar

My cousin brother, aged about 65, a Modi admirer and Congress hater, is of the opinion that India has not made satisfactory progress since independence. I concede that every individual has the right to have and live by his own convictions. I believe that India has made remarkable progress compared other countries which became independent about the same time. The progress has to be seen in the background of its state of development, non availability of financial resources, trauma of a violent partition and the mass migration that followed and a huge illiterate, indisciplined  population fragmented by religion, caste, language and ideology. I would therefore like to lay before my learned audience the progress that I have seen during my working life which began in 1963 and leave it to them to decide whether we as a nation have made adequate progress and which political party made this development possible.

Progress I have Seen

As a young army officer undergoing training in College of Military Engineering, Pune in 1964, we used to ride bicycles to our classes and club. Today, about 20 lakh two wheelers are sold in India every month. 90% households in cities and 60 % in villages have two wheelers. School and college going children use two wheelers.

In 1964, it used to take 10 hours to go by meter gauge train from Siliguri to Banarhat in Dooars, about 200 kms. Now it , takes 3 to 4 hrs. There was no railway bridge over Ganga at Farakka or over Bramhaputra at Guwahati. Since then, meter gauge lines have mostly been converted to broad guage, steam engines have been replaced mostly by indigenously produced electric and diesel engines. Konkan Railways, about 600 km of new railway line across one of the most difficult terrain has been constructed. The railway network has been extended to Srinagar over the Pir Panjal range and into the forests of Madhya Pradesh, Jharkhand and Chattisgarh. Many amazing tunnels and bridges have been built using state of art technology.

In 1964, an illiterate person could become a jawan in the Army. Today matriculation is the minimum qualification. My non matriculate sevadar’s son is an IT professional working with a British company in Bangalore and earning Rs 1 lakh per month and having company car. The daughter of a daily labourer in my friends factory is an MBBS doctor. How many countries can boast of such upward mobility?

We fought the Pakistani Patton tanks in 1965 with World War II vintage Centurion and Sherman tanks whose rounds used to bounce off the Patton armour. By 1971, Indira Gandhi had modernized the Indian Army with Soviet equipment. We defied US, defeated Pakistan and liberated Bangladeh. No new artillery gun or fighter aircraft has been acquired since 1989.

My father could not afford a car in his life time. I bought mine in 1971 when I was 31. A car then cost 20 month’s salary. There were only 3 car makers. Maruti Udyog, the 4th, was started by Sanjay Gandhi in late eighties. Today, there are over a dozen companies selling about 6 million cars a year in India. A car costs 6 to 10 months salary.

Hundreds of dams have been built all over India to harness rivers for irrigation and power generation. The Bhakra Dam and the Indira Gandhi Canal from Fazilka in Punjab to Barmer in Rajasthan have converted many barren districts of Rajasthan into grain bowls. Millions of hectares have been irrigated. How many dams have been started since 1999?

I was Chief Engineer of a Border Roads Project in 1985. Road construction was mostly done manually. Today, road and bridge construction is completely mechanized with pavers, dumpers, bitumen plant, mass concreting etc.

The first computers made their appearance in government offices in 1985. No one knew how to use them. By 2000 almost all offices in public and private sector were using computers and e mails. Today, typewriters are obsolete. All communications and design calculations have been computerised. Indian IT companies and professional dominate the world.

After retirement from army I settled down at Alwar in Rajasthan in 1994. It is a district headquarters. The waiting time for a land line was three years. By 2000, you could get a broad band connection in days. At the time only 10% girls went to school. Today, the number is almost 100%. Agriculture is mostly mechanized. In 1994 the vegetable vendors had not heard of mushroom, baby corn or broccoli. Today these are locally grown and easily available. There wasn’t a single engineering college in the district in 1994. Today there are 4. My part time maid has TV with DTH, two refrigerators and two motor cycles in the family. In  1994, the cycle rikshaw was the main public transport. Today, in addition, we have six seater light commercial vehicles, auto rikshaws and battery operated rickshaws. Everyone from managers to maids have mobile phones.

Who should get Credit for the Progress?

A lot of the progress is individual driven. There is some complacency in the children of the top dogs many of whom rely on the wealth, family business or influence of their parents to get ahead in life. But there is a strong desire among the children of the underdogs to get ahead. It is for the governments to provide the opportunities and level playing fields for everyone to become prosperous.

Congress has been in power at the Centre from 1947 to 1999 when BJP under Mr. Vajpayee came to power and again from 2004 to 2014 when Modiji came to power. The short stints of coalitions governments under Mr. VP Singh, Mr. Chandra Sekhar, Mr. Raj Narain, Mr. Deve Gowda and Mr. Gujral could do little. Thus the progress made by India and Indians has been due to the vision and policies of Congress leaders like Pandit Nehru, Lal Bahadur Shastri, Indira Gandhi, Rajeev Gandhi, Narsimha Rao and Sonia Gandhi. Mr. Vajpayee also made a great contribution with his development of national highways and the Pradhan Mantri Grameen Sadak Yojna.

Modiji talks of “Make in India”. Pandit Jawarlal Nehru started “Make in India” even before Modiji was born. Modi talks of doubling farmer’s income. The “Green Revolution” which enabled India to transform from a grain importing nation to a grain exporting country was started by Lal Bahadur Shastri and actually doubled farm incomes.

Indira Gandhi persuaded Sikkim to join India and liberated Bangladesh in spite of US opposition and its 7th Fleet. Compare it with the “Surgical strikes by the Indian Army” which BJP leaders and the pro BJP media never tire of chest thumping and talking about.

Mr. Modi talks of acting against hoarders and black marketers. Mrs. Gandhi launched action against hoarders and black marketers and nationalized banks to prevent public money being used by hoarders and black marketers in the 70s. Now under BJP industrial houses have been allowed to open banks so that they can use public money for private business. Mrs. Sonia Gandhi legislated RTI so that corruption can be exposed while BJP governments of Maharashtra and Rajasthan have brought in gag orders to prevent exposure of corruption. The Law Ministry is working overtime to dilute RTI. Modiji has not appointed Lok Pal to prevent BJP corruption from being exposed. Now NIMO threatens the existence of NAMO.

Congress launched Indira Awas Yojna much before Modi launched PM Awas Yojna. Modiji talks of digital India. It was Rajeev Gandhi who brought in Sam Pitroda and launched the IT revolution and broad band communication network which we take for granted today. It was Manmohan Singh who launched the economic liberalization.

Amul was the start of large scale milk and milk product production that pushed India to be world’s second largest milk producer. It was launched during Congress rule in Gujarat. BJP has stopped sale of unproductive cows. This will damage the dairy industry.

GST was conceived by Congress but launched by Mr. Modi. Aadhar was launched by Congress and usurped by BJP. India’s longest road bridge and longest tunnel were started by Congress but inaugurated by Mr. Modi. Narmada Sagar Dam was started by Congress and credit usurped by Modiji.

How many young men and women know about Congress’s contribution to India’s development? Congress does not know how to project their achievements. Mr. Modi and BJP are experts at taking credits for other’s achievements and make small achievements seem earth shaking.

GDP as Yardstick of Progress

A lot of people measure progress in terms of GDP growth. I find it illogical. In calculation of GDP, producing 25 ltrs of milk costing Rs 40 per ltr is equal to consuming one bottle of whiskey costing Rs 1000. How can the two be equal? This method has been adopted by economists of the Western Economies to maximise the contribution of Capital and technology over which the Western Powers and their multinational companies have a strangle hold. The GDP method encourages conspicuous consumption and seeks to maximise corporate profit. It also makes developing countries borrow from IMF and lose economic sovereignty. Measurement of progress by measuring human development index will focus our progress to employment, food security, healthcare, education and preserving the environment.


Has India progressed? It is for my learned readers to decide. My grand children cannot even imagine what India was in the 1950s or 1960s. I wish they are keen to know the truth. Unfortunately, not many young people have time or desire to know to know the true story of India’s partition and progress.

Our leaders are humans. They make mistakes. Hitler attacked Soviet Union and led Germany to defeat. Japan attacked Pearl Harbour, forced the US to join World War II and surrendered after Hirosima and Nagasaki. President Kennedy got US into Vietnam and President Bush into Iraq and Afghanistan with disastrous consequences for the US. The list is endless.

Political corruption is universal and not a special trait of the Congress. President Lula of Brazil is in jail. President Zuma of South Africa and Prime Minister of Pakistan Mr. Nawaz Shareif have been forced to resign and could end up in jail. Ex President Clinton gets $750,000 and PM Blair a smaller sum for a lecture which is a cover for lobbying. The list is endless. NIMO is the first major scam to come to light during BJP Raj. We have to wait till BJP is out of power to know about corruption among their ranks. So please be fair in your judgement.

Raghuram Rajan: God of Wealthy and Speculative India

Friday, September 6th, 2013

Raguram Rajan; God of Wealthy and Speculative India


Col Bhaskar Sarkar VSM (Retd) ;

The appointment of Mr. Raghuram Rajan as Governor of the Reserve Bank of India has been widely welcomed by the industry and the financial institutions. The Sensex rose 412 points on the day he took over. The Rupee rose 106 paise to the US dollar to close at Rs 66.01.

It is only to be expected. Mr. Raghuram Rajan with his IMF background is a Neo-liberal economist. So he is expected to be more pro industry, pro multinational, pro investors, and pro-economic liberalization which essentially means less control and supervision of the activities of banks and financial institutions. Let us look at some of the measures he has promised to take.

Banks Overseas Borrowing Limit has been Doubled

The bank’s borrowing limit has been doubled to 100 % of Tier -I capital. If borrowing could solve long term financial problems (India has had a trade deficit since independence and a Current Account Deficit for most of its 66 years of independence), there would be no financial problem in the world. How will they pay back the loans? Of course this will be done by borrowing some more.

Banks Provision for CRR and Statutory Liquidity Ratio to be Cut

This step will make banks more vulnerable to crashes as in 2007. But who cares? The poor depositors will loose their all. Companies have limited liabilities. The wealthy have enough to bear these pinpricks.

More Leeway for Foreign Banks

I do not understand what it means. Perhaps wealth management and money laundering will be allowed on a larger scale.

Liberalization of Markets and Allowing Speculation

This is also not clear. Some suggest that it hints at removal of restrictions on Indian banks from taking positions on currency futures. The Commodity Exchange in India is already in default. Millions of small investors are regularly cheated by chit funds and multilevel marketing companies. But that is not a concern for the government which is of the rich, by the rich and for the rich.

Use of GDP for Economic Planning

Producing one quintal of rice, two bottles of whiskey, consuming 20 liters of petrol produce the same GDP. A foreign investment of Rs 1500 in the stock market will also produce the same GDP. Are they equally beneficial to the society? Do they generate equal employment?


Mr. Raghuram Rajan is a God of the Virtual World. He can increase the market capitalization of our stock exchanges. He can make banks more vulnerable to economic crisis in the world. But he cannot save the Rupee for the price of the rupee is based on demand and supply of dollars. That situation is not going to improve unless we reduce imports by raising import duties and taking other protectionist measures. The only way to save the Rupee is to follow a fixed exchange rate like China.

Mr. Raghuram Rajan cannot control prices which are governed by the price of fuel and speculative hoarding. He is not the God of Aam Admi.

India has been following neo-liberal policies for 22 years. During this period the Rupee has fallen from Rs 15.50 to Rs 66 to the dollar. During this period diesel prices have risen from Rs 6.11 to a liter to Rs 60 to a liter. Neo-liberal trickle down policies will not benefit the Aam Admi. Going back to socialistic policies like adopting a fixed exchange rate and increasing the role of public sector in India will.

The Government of India behaves like the Zamindars of Bengal. Their income was not enough to meet the cost of their lavish lifestyles. They borrowed and to repay the loans they sold all their lands and belongings and became paupers. The Government of India lives on borrowed money; both dollars and rupees. They have started selling the public sector units. What will they sell thereafter; cities; towns and states?

Twenty Two Years of Economic Liberalization: What Has India Gained

Saturday, August 17th, 2013

Twenty Two Years of Economic Liberalization

What Has India Gained

By Col Bhaskar Sarkar VSM (Retd)

Economic Liberalization in India

The Narsimha Rao led Congress Government came to power in 1991. To every ones surprise, he appointed Dr. Manmohan Singh as finance minister. Over the next few years, despite strong opposition, Dr. Singh as a Finance Minister carried out several structural reforms and liberalized India’s economy. These measures proved successful in averting the balance of payment crisis. It enhanced Singh’s reputation globally as a leading reform-minded economist. The Congress Party did poorly in 1996 elections and finally lost power to the National Democratic Alliance (NDA) in 1997. However, the NDA Government under Mr. Atal Bihari Vajpayee continued the reform process. In 2004, when the Congress-led United Progressive Alliance (UPA) returned to power, Dr. Manmohan Singh became the Prime Minister. The Indian Government has been continuing economic liberalization to date.

This article seeks to examine what India has gained by following the policy of economic liberalization.

The Indian Rupee

In 1991, India had a serious balance of payment problem. Its foreign exchange reserves were very low. At this stage the 1US$ was equal to about Rs 17.50. In other words, when economic liberalization was initiated, 1 US dollar was equal to Rs 17.50. By 2006, the Rupee had fallen to Rs 48 to a dollar and on August 16, 2013, it touched Rs 62 to an US $. In other words, 22 years of economic liberalization has reduced the value of the Rupee to one quarter of its 1991 value.

Trade Deficit

In financial year1991-92, India had a trade deficit was US$ 1.546 billion. By 1999-2000 it had risen to US$ 12.846 billion (Source Department of Commerce, Government of India). In financial year 2004-05, when Manmohan Singh became Prime Minister, the trade deficit had risen to US$ 27.981 billion. By 2009-10, the deficit had risen to US$ 109 billion. At the end of 2012-13, the deficit was US$ 180 billion. In other words, 22 years of economic liberalization has increased India’s trade deficit about 120 times.

Current Account Deficit

In 1991-92, India’s current account deficit was about 3% of its GDP. In 2012-13 it was 6.7%. The rate is constantly rising. In the 22 years of economic liberalization, the current account deficit has more than doubled as a percentage of GDP.

Diesel Prices

On September 16, 1992, the price of diesel in Delhi was Rs 6.11. An LPG cylinder cost Rs 82.75. On February 28, 1999 the price of diesel had risen to Rs 9.94 and an LPG cylinder cost Rs 145. June 16, 2004, the price of diesel was Rs 22.74 and an LPG cylinder was Rs 261. In August 2013, the diesel price is about Rs 65 and an LPG cylinder is about Rs 400. In other words in the 22 years of economic liberalization, the cost of diesel has risen more than 10 time and the cost of an LPG cylinder about 5 times. This is in spite of large scale subsidization of these products by the government of India through the state owned oil companies which are on the verge of collapse..

Onion Prices

Price of onion in the whole sale market of Delhi in 1991-92 was about Rs 400 per quintal. In August 2013, the price is about Rs 6500 per quintal. In other words, 22 years of liberalization has increased the price of onion about 16 times and put this humble vegetable out of reach of the common man.


Dr. Manmohan Singh took over as finance minister in 1991 at a time of economic crisis. He liberalized the economy by removing capital control, import controls, and government control over economic activities in the country. He is the darling of the US, EU and China as their multinational companies are making more money in India than they had ever done before. Their and Indian multinationals and investors are getting richer while the ordinary Indians struggle to make both ends meet. India’s foreign exchange reserves are dwindling at a rapid rate. The Indian rupee and the Indian economy are again in crisis.

I know of two kinds of doctors. The first kind diagnoses the problem; prescribes a medicine and repeats the medicine till the patient dies. The other kind changes the medicine when the patient does not respond to the treatment. I wonder what kind of doctors are attending to India’s economic problems.

May God save India.

Saving the Collapsing Indian Rupee

Wednesday, August 7th, 2013

Saving the Collapsing Rupee


Col Bhaskar Sarkar VSM (Retd)

The Indian Rupee has been hitting all time lows against the US dollar in recent times. In 2006 the cost of one US$ was about 40. In August 2013 it has been hovering over Rs 60 and sending our oil import bill in Rupee terms through the roof. The rising cost of imported petroleum products and imported coal has increased inflation and the subsidy burden of the government. A desperate government is out with the begging bowl trying to attract FDI by diluting pro India investment conditions and forgoing investigation into the source of funds. Exporters are delaying remitting dollar earnings and laughing all the way to the banks. The ordinary people and the nation suffer.

Strong Rupee VS Weak Rupee

The basic advantage of devaluation is that it makes exports cheaper and makes imports costly. All through the last 66 years of its independence, India has exported less than it has imported in dollar terms. India’s exports during 2012-13 stood at about US $300 billions, while imports aggregated at about US $492 billion. Trade deficit thus stood at $191.6 billion. If the conversion rate was Rs 40 to the US$, the trade deficit in Rupee terms would be 7664 billions. If the conversion rate was Rs 60 to the dollar, the trade deficit in Rupee terms would be 11496 billions. In other words, the Indian people are paying extra Rs 3832 billion or Rs 3,83,200 Crores for the same levels of imports just because of the governments failure to check the slide in the Rupee.

If there was 10 % devaluation in the Indian Rupee and the imports and exports remained the same in volume, the dollar cost of imports would go up to about US$ 540 billion and receipts from exports will reduce to US$ 270 billion. The current account deficit would increase to US$ 270 billion. On the other hand if the Indian Rupee appreciated by 10 % and volumes remained the same, the cost of imports would be US$ 452 and the cost of exports would rise to US $ 330 billion and the trade deficit of US$ 270 billion would be reduced to US$ 122 billions. Even if the volume of exports dropped by 10 % due to the appreciation of the rupee by 10 %, the revenue from exports would be US$ 270 billion and trade deficit will drop from US$ 270 billion to US$ 180 billion. It will be obvious to the dumbest, that a strong currency will always be advantageous to those countries which have a perpetual trade deficit.

The United States understands this fact much better than most other countries. That is why it spares no effort to maintain a strong dollar. Unfortunately most economists, Prime Minister and Finance Ministers of India either do not understand this simple truth or opt for devaluation of the currency for some hidden motives like external pressure from the US, IMF or World Bank or internal lobbying by exporters.

Devaluation of Rupee is not in the best interest of India. The concept of making exports more competitive through devaluation is seriously flawed. It only helps the exporters of the country and the consumers in the developing world. It never helps either the Indian economy or the Indian people. The consumption of any product in the world like tea, coffee, and sugar is finite for a given population. Increase of exports by one country can only be at the cost of another. The developing nations must learn and understand that mindless competition amongst them is only helping the developed nations get richer and making the developing nations poorer. Developing nations should not fight like street dogs for a piece of meat (the market of the developed world). They must learn to co-operate. If India, China and Sri Lanka produce 90 per cent of world tea, they must get together and control production and sale so that they get remunerative prices. If India and Australia produce 80 per cent of iron ore, it is in their interest to co-operate and ensure remunerative prices of their product. The volumes of exports may fall marginally in the short term. But the returns in dollar terms will increase. We can either opt for over production and deflation. Or we can co-operate and control production and get remunerative prices for our produce as OPEC countries have done in the period from 1999 to 2007 and taken the price of crude oil from $ 14 per barrel in 1999 to over $ 90 per barrel for most of 2007. By this simple manoeuvre, oil exporting countries are piling up their foreign exchange reserves and oil companies are posting record profits.

Keeping the Rupee Strong

To have a strong Rupee, the availability of Foreign Exchange must exceed payment requirements. This can be achieved through two methods. One is through manipulation of market forces. The other is by introducing a fixed exchange regime. Let us examine each of them.

Defense Through Manipulation of Market Forces.

This approach requires that we try to create market conditions such that the availability of dollars exceeds demand. Foreign exchange is received in different ways. These are:

à Foreign Investment in the Share Market. This is the “hot money” that has been the cause of world’s economic instability. The less we have this type of foreign investment, the better off and more stable will our economy be. However, the government and domestic investors are wooing Foreign Institutional Investors (FIIs) as their investment boost markets and and reduces Current Account Deficit in the short run.

à Foreign Direct Investment. Foreign direct investment can be beneficial to the country as long as it does not create surplus capacities and net foreign exchange outflows. It should also not result in unfair competition with domestic industries leading to destruction of Indian manufacturing. Most imports from China are doing just that.

à Export Earnings. This is one of the major sources of foreign exchange. However, the slow down of the economies in the developed world eliminates the prospects of increasing exports to the developed world.

à Remittances by NRIs and Indians Working Abroad. This is an important source of non refundable foreign exchange. It is a major contributor to balancing our Current Account Deficit and increasing our foreign exchange reserves. There is a need to provide an incentive to get these remittances through official channels. A simple one is to give them a higher conversion rate if the funds are remitted through Indian Banks. In other words Public Sector Banks pay Rs 2 more for a US$ than the rate at which we sell. At present the rates for selling are higher than the rates at which we buy.

à Foreign Investments in Indian Government Bonds and Banks. The India Resurgent Bonds, Global Depository Receipts and NRI deposits in banks are examples. These are not earnings but amount to loans and have to be returned with interest at the agreed time. These help to tide over the short term problems but are potential long term problems if they are not productively used to earn foreign exchange.

à Market Borrowing. This is foreign exchange borrowed from commercial banks abroad by the government of India, Indian companies and subsidiaries of multinationals in India. These are potentially hazardous unless these loans can generate the foreign exchange required to repay the loan and interest. This was one of the reasons for collapse of the Asian Tiger Economies in 1997. This type of borrowing requires strict monitoring by RBI.

à Export of Services. Export of Information Technology and Business Process Outsourcing services have proved to be major foreign exchange earners.

Manipulation of such a diverse set of market forces is extremely difficult if not impossible. Foreign exchange reserves, even if very big, do not ensure a strong a strong and stable currency. Japan has over US $ 200 billion of Foreign Exchange Reserve and a trade surplus of US $ 117.3 billion. Yet it has a weak Yen and violent fluctuations in its exchange rate. If market forces and currency speculation are allowed to prevail, devaluation of the Rupee will continue.

Defense of the Rupee through Legislation

As we have seen above, the Rupee cannot be defended by manipulation of market forces or by begging for foreign investment. In 1997, Hong Kong spent over 30 billion dollars to defend its currency. India cannot afford to do so. Other countries such as Thailand, South Korea, Malaysia and Brazil also failed and lost precious foreign exchange in trying to defend their currency. If market forces are allowed free play, the Rupee can be brought to its knee any time if the foreign financial institutions consider it in their interest to do so.

When the Rupee begins to weaken, exporters delay bringing in the foreign exchange earned in the hope of making profit. This creates shortage of foreign exchange and weakens the Rupee further. On the other hand, when the Rupee is strengthening, the exporters are in a hurry to repatriate the foreign exchange earned to avoid loss in conversion. This increases availability of foreign exchange and further strengthens the Rupee.

The best way to defend the Rupee is to fix its conversion rate through legislation. There are many options in this regard. We have countries which rigidly fix their exchange rate to the US dollar, SDR or basket of currencies. Hong Kong, Bulgaria, Denmark etc follow this system. Argentina followed this system from 1991 to 2001 when its currency was falling. China has a crawling peg fixed exchange rate that is decided by its government even though it does not have a current account deficit and a foreign exchange reserve of over US$ 2 trillion. All countries joining the EU have to fix their currency conversion rate with the Euro.

India should follow the crawling peg system where the fixed rate is changed from time to time at periodic intervals with a view to eliminating exchange rate volatility to some extent without imposing the constraint of a fixed rate. Crawling pegs are adjusted gradually, thus avoiding the need for intervention by the central bank (though it may still choose to do so. To start with, it can be fixed at its present level. There after we should appreciate the rupee gradually at a rate of half a rupee per month. This will force exporters to repatriate the foreign exchange earned quickly and not hold it back in the hope that the rupee will depreciate. It will also progressively reduce the cost of essential imports. In two years it will reach the rate of RS 36 to one US dollar. We can fix it at that rate there after.


India is the world largest market. Investors cannot sit on their money for ever. They have to invest in India. They are trying their best to arm twist India to allow them to invest in India on their own terms. We should not capitulate. We should only allow foreign investment on our terms and in the best interest of the people of India. The US senate is bringing legislation to stop out sourcing to protect jobs. We must change over to a crawling peg system of exchange rate and appreciate the Rupee to force exporters and other foreign exchange earners to repatriate their earnings at the earliest. India must learn to act in self interest like the US and China. We must also buy foreign exchange at a higher rate than we sell it. This will encourage remittances through official channels.

Horse Meat in Beef Products in Europe; Be India Buy Indian

Thursday, February 14th, 2013

Horse Meat in Beef Products in Europe

By B

Col (Retd) Bhaskar Sarkar VSM

Indians have always loved foreign things. Not many quality Indian products were available in India under the British Raj. But Indian women were beautiful and made great wives and mothers. But many Indian men going abroad for studies were fascinated by western women and it was fashionable to bring home a foreign wife. Mahatma Gandhi, the Father of the Nation, had recognized in the craze for imported products the danger of a return to economic and cultural slavery that had taken root during British rule. He recommended “Swadeshi” or self reliance and boycott of foreign goods as a part of our freedom struggle.

Things have changed. We are an independent and an advanced developing nation. Our industries have developed. Indian products can match the western products in quality in almost all fields. However, listening to fathers (of the nation or households) became unfashionable a long time ago. Showing off is the pastime of the rich and the upward mobile young Indians. They want everything, their cars, their clothes, their cosmetics, their jewellery, their whiskey, their wines, their perfumes, their deodorants and even their food to be western and preferably imported. But can we be sure that all that we import from abroad are of good quality? Let us see the latest example of Western Corruption. 30 to 100 percent horse meat has been found in beef products of many top brands in 16 European Countries. In mid-January, Irish food inspectors announced that they had found horsemeat in some burgers stocked by UK supermarket chains. But it was hushed up. Then in mid February 2013, up to 100% horsemeat was found in several ranges of prepared frozen food in Britain, France and Sweden. If Europeans can feed white skinned people with horse meat instead of beef, you can rest assured that they can feed brown skinned Indians and black skinned Africans with meat and cosmetics made from dead animals. Even earlier it was reported that Western fast food chains have used animal fats for cooking vegetarian dishes. We do not have a proper system of testing cosmetics and other products that we import. Our regulators and inspectors are also well renowned to look the other way for monetary considerations. How can you say western products are better than Indian products? I use Indian products and have found them to be very good. I now use homeopathic toothpaste, “Camodent”, homeopathic cold cream with Alovera, Parachute Soft Touch moisturiser, and Jaborandi hair oil with Arnica. My 92 year old mother has been using Boroline antiseptic skin cream for over fifty years.

Finally, “Be Indian, Buy Indian” is not a slogan of an aged, old fashioned nationalist. It is essential for India to remain an economically independent nation. Every time we buy a foreign product, eat foreign food stuff like apples and almonds, food products like tinned fish or ham or sausages or drink Scotch whiskey or foreign wine, whether made in China or the West, India has to pay for it in Dollars which India does not earn. India has an annual trade deficit of US$124 billion and growing. Of this about US$40 billion is our deficit with China. If this continues, our Rupee will be further devalued. Today, the US$ is fluctuating between Rupee 53 and 54. It was Rs 38 to the US $ in 2004. In 8 years it has devalued about 40 percent. At the present rate of devaluation, the Rupee could depreciate to Rs 100 to a UD$ by 2020. That would mean rationing of petroleum products as crude oil will cost that much more in Rupee terms. India may not have enough Dollars to import our requirement of crude oil.

Buying foreign goods creates jobs in foreign countries and job losses at home. The US and Europe have been happily shifting manufacturing industries to Asia and buying goods produced in China and other developing countries. The unemployment rates in the US and Europe has been steadily rising. In some countries like Spain and Greece, it has crossed 25 percent. Poverty and hunger are rising in the developed world. The number of homeless is rising in the developed world. Highly paid jobs in the manufacturing sector are going to China and the Asian Tigers. Only low paid jobs in the service sector like waiters, sales persons, etc are being generated in the US and Europe. Are we going to learn from the plight of the people of US or Europe or are we going to continue our profligate ways.

Be Indian; Buy Indian; not because some old fashioned nationalist tells you to. Be Indian; Buy Indian to secure the future of your country and the future of your children.

Jai Hind

(If you agree with the views of the author, forward the mail to your friends and relatives.)