Friday, August 31, 2012

Is there any other option?

From $1.4 trillion in 2009, the US fiscal deficit is projected to hit an alarming $1.6 trillion this year. One alternative that perhaps can save US from collapsing is the implementation of a nationwide VAT. by Manish k. Pandey

Though it has been almost a year since the so-called ‘green shoots’ of recovery started showing up on the US soil (GDP grew at 1.6% in Q3 2009 for the first time since 2008), they still don’t seem to holding onto the ground firmly. Not only have they started turning pale (US Q2 2010 growth is to be revised sharply, lower to 1.2%, from 2.4% originally), but nurturing them for long is also now deteriorating the nation’s long-term fiscal health. In fact, the US fiscal deficit that has ballooned with the recession is now slowly turning out to be a major threat to its long-term economic sustainability. From a colossal $1.4 trillion (9.9% of GDP) in 2009, the fiscal deficit is projected to hit an alarming $1.6 trillion (10.6% of GDP) this year, the largest since World War II. What’s more? The gross federal debt too is poised to stand at $13.8 trillion by the end of 2010 (US Office of Management and Budget) making the situation critical.

The simple reasoning – that the nation has just come out of the worst economic downturn since the Great Depression, and the bailout programmes including the Troubled Asset Relief Program (TARP; As of April 2010, estimates of its cost to the government had come down to $89 billion from original $356 billion) and the American Recovery and Reinvestment Act (ARRA) have made this dent – also does not come to the rescue of the policy makers. A Moody’s Economy.com analysis of US Budget data reveals that the deficit in 2009 still would have been $1.2 trillion, even without the TARP and ARRA.

To put it simply, the US economy faces a biting budget deficit, and fixing it will not be easy for Obama administration. Raison d’être: Most of the government spending is dictated by several laws and entitlement programmes whose cost grows automatically, without annual authorisation from Congress. Other major portions of the budget too go in paying for defence and interest on the national debt, both of which are also largely beyond government’s control (see chart).

Well, one option is to tax the rich. But here the numbers backfire. Top tax rates in US are already at around 40% and an increase above that would prove counterproductive. Even if that happens, the revenue generated will not be enough to repay the $13.8 trillion debt. Similar is the case when it comes to taxing big business. The US corporate tax rate (at 35%) is already among the highest in the world and raising it further would reduce the competitiveness of US firms. Another option is to cut spending. But that too isn’t happening anytime soon. A major portion of federal spending is on social security programmes, medicare, et al, which are all set to rise sharply as baby boomers retire. So if not these, what’s the alternative?

One that perhaps can solve the problem is the implementation of a nationwide value-added tax (VAT). As VAT has a broad base, it could generate enough revenue to deflate the ballooning deficit while simplifying the tax code. And since VATs are already in use in most of the countries across globe (about 150 countries have a VAT, with tax rate ranging from 5% in Japan to 25% in Sweden), implementing it in US too would further harmonise global business rules and reduce trade frictions. 


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Thursday, August 30, 2012

MCD: PARKING WOES

It’s surprising to note that MCD’s low-cost parking service is often creating problems for scores of commuters on the busy Delhi roads. B&E analyses why it is time to announce a hike in parking rates. by Pawan Chabra

“Parking is just like any other market, when demand exceeds supply, the price will rise until demand meets supply (equilibrium). If supply is fixed, it’s demand that determines the price,” says Ross J. Moore, Chief Economist, Colliers International. Unlike the municipal authority in Delhi, the parking rates are usually set by the private sector across the globe and the government-owned parking garages follow along. Considering the fact that the parking lots that are managed by the MCD are in a very shoddy state (compared to the parking lots managed by private players in malls), the MCD should seriously look at the option of hiking the parking charges in Delhi. This will not only control the ongoing illgeal parking activity in the city, but will also help in removing congestion from Delhi streets. Raison d’être: To stave off from paying a higher parking charges, people generally refrain from driving their cars in the city areas.

However, there are critics who feel that a rise in parking rates might invite lot of chaos. No doubt, it will in the initial stages, but if implemented in phases – wherein the government also focuses on the development of the public transport and subsequently announces a rise in the parking rates – the solution is really a viable one. In fact, high parking rates can even serve as a practical alternative to the proposed congestion tax that might create a hue and cry among general public. “But if people are used to either free parking or cheap parking, the transition to high parking costs will take years if not longer,” cautions Moore.

In fact, understanding the gravity of the situation MCD has already started working on its plans to implement flexible parking rates across Delhi in order to ensure that there is less congestion in the city streets and has even set a deadline for its execution – the next financial year. Though the project will start initially in the South Extension circuit and will be extended to other areas, the officials at MCD will have to ensure that its implementation is done with utmost care and it should not end up creating more parking mafias in the Capital.

There is an immediate need to implement congestion tax to ensure less congestion on the busy Delhi roads, but it will surely require a lot many years before the intent actually matches the projected image. Till then, people like Sahil will have to bear the cost and the unnecessary hassle as well.


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Wednesday, August 29, 2012

US: TERROR POLITICS?

Alive! There are reasons to kill Osama, and there are reasons to keep him alive; Pakistan, and the US, look decisively tilted towards the latter
 
Newsweek reported late last year that officials at the US embassy in Islamabad alleged that “Pakistan misspent some 70% of the US funds!” Pakistan is also accused of “running a double game with the money, keeping the Taliban at bay just enough to persuade American benefactors to keep their wallets open.” Not that this was a State secret; but the benign nature of Barack Obama’s response – or lack of it – is astounding! On August 2, 2010, Obama commented that Pakistan is beginning to “take the fight to violent extremists within its borders.” That sounds as far from the truth as possible.

Thomas Friedman writes in this week’s issue of The Sunday Indian, “The 9/11 attack was basically planned, executed and funded by radical Pakistanis and Saudis.” Fareed Zakaria confirms, “70 percent of the terror plots uncovered in the past decade can be traced back to Pakistan,” a country which, Zakaria adds, is “the epicentre of Islamic terrorism!”

Is Barack Obama blind or are we plain nutty? The practice of keeping anti-social elements alive for political and economic benefits is not just a western phenomenon. In the Asian continent, the most famous case was of a forest brigand cum smuggler in Southern India, called Koose Muniswamy Veerappan, who – in spite of being charged of murdering 184 people, poaching around 200 elephants, smuggling ivory and sandalwood worth $24,600,000, kidnapping the who’s who of the political and entertainment world – never saw the local government ordering swift action against the criminal, mainly because a considerable amount of money flowed into the territory due to his staying alive and in action.

Similar is the case with bin Laden. His living means more to Pakistan than to any other entity. Barack’s refusal to call a spade what it is, will go down in history as perhaps the worst two-faced moves ever made. Friedman quotes, “If you are in a poker game and you don’t know who the sucker is, it’s probably you!” Obama, ever wondered why Chelsea never invited you for her wedding?


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Tuesday, August 28, 2012

Scripting success

John Abraham, last seen playing the baddie in New York, reveals that he is being offered colossal sums by producers, but he has become wary of the scripts. The reason for this pessimism is that he has had four long-delayed projects, which have now been entirely shelved! He says that he has learnt to be diplomatic while turning down projects he doesn’t believe in. Considering John’s career, that’s a skill he definitely needs to master! 

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Friday, August 24, 2012

Time to stop the rabble rousing Mr. Cameron!

Why the deficit control measures given by UK Prime Minister David Cameron suspiciously point to his lack of understanding of economics

Ronald Reagan, the 40th American President once avowed in the context of rising US deficit, “I’m not worried about the deficit. It is big enough to take care of itself.” The relevance of this statement lay hidden in a clearly less than astute understanding of deficit economics that Reagan had (something that led to the term ‘Reaganomics’ becoming common sarcastic usage), which had its basis on the key points of reducing marginal income tax rates, regulation, money supply and unfortunately government spending too. While reducing the former two was considered pro-growth, for the rest, it was considered suicidal for economic growth. Fortunately for the erstwhile Hollywood actor, the baby boomers in US ensured that the nation had years of consecutive growth, with or without his policies.

On June 22, 2010, when David Cameron, UK Prime Minister, presented the UK budget through Chancellor George Osborne, it seemed an unbelievable replica of Reaganomics – capital gains taxes not raised for basic rate taxpayers, personal income tax allowances increased by £1000 to £7475, higher rate taxpayers’ income tax rates unchanged but capital gains tax increased to 28%, and corporation taxes cut too. The logic being forwarded by Cameron and Osborne is that by 2015, the budget deficit – which is currently at 11.5% of UK’s GDP – will be “in balance” by 2015. Yes, part of what he’s saying seems brilliant – especially the tax movements (leave the illogic of not increasing the higher tax payers’ rates).

Even during his campaigning days for the UK Prime Ministerial elections, Cameron used the deficit card and it worked successfully. After winning, Cameron has tried hard to continue holding the placard, as he indicated in a speech on June 7, 2010, “The most urgent issue facing Britain today is our massive deficit and our growing debt.” In that speech, Cameron kept harping on the fact that while UK currently pays around £35 billion annually as interest payments, the amount was expected to go up to £70 billion annually in the next five years – something that he wanted to control urgently.


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Thursday, August 23, 2012

THE FALLACY OF ASSUMPTION CAN BE DANGEROUS

THE SINGUR STANDOFF IS JUST THE MOST PROMINENT EXAMPLE OF HOW THE FALLACY OF ASSUMPTION CAN BE DANGEROUS IN A DEMOCRACY! WRITES ANIRUDDHA BANERJEE

Cashing in on the situation, the opposition parties, including Trinamul Congress, played with the emotions of farmers. Mamata Banerjee joined the movement staging huge protests against the Left’s allegedly forcible land-acquisition policy. With an ugly bloodbath of Nandigram on the backdrop, the popular media also abandoned any possibility of sympathising with the Left, with Tata Motors suffering unintended collateral damage. The Left government made its final attempt to safeguard the Nano project by deploying a sizeable security force in and around the factory. The move backfired with violence erupting en masse around the various affected areas, leading to a subsequent massive clampdown by the state government.

Ratan Tata was forced to call a press conference wherein he declared that he could no longer operate in Bengal under ‘constant threat.’ The Left was left with their jaws down when the Narendra Modi outwitted everyone and welcomed Ratan Tata to Gujarat [by sending a text message, or so the story goes] with promises of better facilities and maximum administrative support.

Over 33 years of uninterrupted power possession had made the Left unmindful of the basic factor of democracy that had kept them in power for long. It took just one Nano imbroglio for the state population’s perception to change – the Left has started crumbling; the Nano is far from it, brilliantly vibrant on the streets...

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Wednesday, August 22, 2012

US ARMY: RELIGIOUS EXTREMISM

Interpreting the war on terror as a crusade has led to a simmering religous extremism in the US military, which needs to be curbed

A scan through media reports over the past few years provides disturbing evidences of unethical behaviour by the US army towards non-Christian soldiers. Among many incidents that came to light about harassment of non-Christians, army specialist Zachari Klawonn’s experience is a case in point. He recently filed a lawsuit alleging that that the Army has not followed through on its promises to address problems even after filing more than 20 complaints of harassment for being Muslim. A media report carried out by the Washington Post (November 12, 2005) wrote about the role of private missionary groups who where training cadets to evangelize their peers. In September 2007, a military watchdog organization, Military Religious Freedom Foundation (MRFF) joined decorated medic Justin Chalker in filing a lawsuit against Secretary of Defense Robert Gates; charging the Pentagon of forcing the soldier to embrace evangelical Christianity. Neither the Pentagon nor the country’s defence official raised any interjection against scriptures found on US weapons. It was only recently that, after an international outcry, a Michigan-based arms company stopped embossing references to New Testament Scriptures on rifle sights that it sells the military. The Muslim Public Affairs Council in Washington referred to biblical references in the weapon as violation of the nation’s values and feared that the blaze of religious extremism may creep into the US military.

With a half Muslim and half Christian president at the helm, things were expected to change to a large extent. On one hand, President Obama is holding meetings and soft peddling with Islamic countries in an attempt to undo the Bush administration’s legacy of anti-Islamic rhetoric that had antagonized many Arab and Asian nations with substantial Muslim populations. But on the other hand, he seems to be quite neutral and indifferent on matters of evangelical military culture which aims to Christianize the US army. Experts fear that this indifferent attitude would give space to these extremists to sow seeds of religious extremism among army men. If the US is really keen on tacking religious extremism in south Asia then it can’t afford to ignore a similar simmering sentiment back home. This is that kind of war where using the same weapons as your enemy would prove counter-productive. For the more friends the US has, the better it is. That conversion makes far more sense than the religious one.


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Tuesday, August 21, 2012

UNITED STATES: SUPERIORITY COMPLEX

All Obama requires to ensure that US is seen as a great ally by the world is to force US officials to control their urge to humiliate people

And it’s not that the cases of such verbal and behavioural transgressions by US officials is not known. In April this year, Afghanistan President Hamid Karzai lashed out at the way he was being treated by American officials and frustratingly announced that he might even join the Taliban if US interference into Afghan affairs didn’t stop – and this when Karzai knows that the reason he is in power is because of the US government’s support.

Not that the US administration has given him any special treatment, they’ve done that with many other nations too. In a weekly column in Forbes magazine in September 2009 titled Humiliating Japan, C. Chang wrote about the various instances when US officials had malevolently belittled Japanese government officials continuously – leading to growing discontent amongst the Japanese population against US, and their elongated presence at Japan’s Okinawa base. This is the very reason that the current Hatoyama government has started giving the US eloquent tit-for-tats, not failing to responde to each and every repartee.

Beside Iraq and Afghanistan, even Japan, Germany and many other countries seem offended with the way American establishment officials behave. Many global conferences are being organized without US involvement now. Latin America hardly pays heed to US remarks and suggestions – and one believes pays them back in the same coin; so does the rambunctious Iran. China’s distaste for American philosophy hardly needs any formal introduction.

With Barack Obama being elected as the first Muslim-black President, there has been a ray of hope for a more approachable and understanding America with a world view. To add to that, Obama is a great orator – perhaps the greatest yet in the line of US Presidents – and one who has the least respect for off-the-cuff verbal assaults (he practices his speeches excruciatingly diligently and never gives a speech without a tele-prompter). In other words, Obama knows the power of speech, the power of communication, and the power of sending the right “friendly” signal.

And he’s realising the follies of his people – in the Karzai case, for example, he sided immediately with the Afghanistan President and blasted his national security team, telling them to treat Karzai with more public respect. In a similar manner, Obama needs to send his team on goodwill visits to countries like North Korea, Afghanistan, Iran, Japan and the likes to promote the power of good faith. If Bill Clinton can get two US journalists freed in North Korea by deciding one day to simply fly in, meet the boss (Kim Jong-il), talk sweetly, and fly out, then why can’t the same be done by Obama’s people? Sadly, as long as dimwit stalwarts like Dick Cheney keep feeling proud of the ‘F’s in their lives, F-theory would stay.


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Monday, August 20, 2012

RUSSIA: ANTI-PUTIN WAVE

Putin should resign to change his perception as a ruthless power hungry political leader; and then (rightfully) reclaim the throne a few months later – that’s a sleight Putin knows too well and has practised well in the past

The recent killings of human rights lawyer Stanislav Markelov and newspaper reporter Anastasiya Baburova have further added fuel to fire and led to tensions with the EU President. Amnesty noted with grave concern in 2007 how Putin was rolling back civil rights in Russia. Another critical blot has been the continued trial of Russia’s richest man, Mikhail Khodorkovsky, because he allegedly financed Putin’s opponents, apart from committing corporate fraud – he’s now serving an eight year sentence.

But then, there is a flamboyant other side to Putin too. Truly, Russia has enjoyed one of the most prosperous periods of growth under Putin after Boris Yeltsin left the country in a sorry state. Between 2000-2008, GDP growth peaked at 10% (2000) and saw 5 years of GDP growth over 7% (APEC). He devised strong policies in fiscal reforms, oil prices, and external financing. Russia experienced a PPP growth of 72%, poverty rates dropped by 50% and average salaries increased by eight times. So Putin’s enduring popularity, by far the highest in the world, isn’t surprising (In 2007, Putin’s approval rating was 81%; even in late 2009, post recession, it was still 65%; Levada Center public opinion surveys). Various surveys revealed that Russians felt the country was “more democratic” under Putin than during the Yeltsin or Gorbachev years.

Given all that, there can be no denying that for all it matters, there is no better choice than Putin that Russia currently has for a leader. Then how does one handle the increasing protests? The solution is pretty simple – and one that Putin has practised well in the past. Putin should resign from his position (for a few months perhaps) and let the protest brigade run out of steam. Once that happens, he should quietly step back and reclaim the throne. Well, it has been rightfully his for years...


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