Tuesday, December 25, 2018

CENTRAL BANKERS DON'T HAVE FREEDOM.


Every government across the globe wants to control the central banks for every policy decision they take. Recently India witnessed a sharp change over of its chief and now Mr. Trump is against Mr. Powell.  Central bankers have always been under the influence of the ruling government. The chief of the banks might be a super economist, may have dozens of awards and new theories of economic but when it comes to framing monetary policy reforms and measures it’s always under the government direction. We are not getting into the debate of interest rate hike is required or not but its more about the freedom of the central banks to work independently.

Will Mr. Powell will be asked to exit all depends upon Trump as he has his own economic theories. Every country has a similar war with their central bankers and it seems that despite facing recession and still struggling to come out of the same, many governments are still forcing the central bankers not to work independently.

Trump is focussed towards creating more job through trade war where the real problem is Dollar and more tax cuts and the interest rate cut down where investments for long-term sustainable economic growth is not focussed.

Trump has an election in 2020 and prior to that, he had given tax benefits impacting the long-term balance sheet of the US government. Now he wants the FED Chief not to hike interest rates any further. He has now come up open in the press to punch the Fed Chief indirectly by the statement that the Federal Reserve was "the only problem" of the US economy.

Trump is a businessman and his point of thinking is from the business side. He thinks that if interest rates remain down, taxes remain down and Trade restrictions are imposed then the GDP of the US economy will grow. What he forgets is that his own term is for 4 and after that, he has another reelection where he may not be elected again.

Monetary policies should be left in the hand of the economist and those who understand the subject over the long term. But no we have seen how the sub-prime mortgage crisis was created with the support of the government by the US FED chief in those times where they all knew that how this subprime will end up.

Firing Fed Chairman and getting another one who will be the puppet of Trump will not solve the economic problems on an overnight basis. It clearly shows that no government wants to understand the principles of economic growth and its long-term implication on the citizens.

In India, we found that how the central bank chief was being under pressure and finally where it ended. The central bankers should be given free hand as they understand the subject better.  Trump policy stance of reduced taxes will cost the long-term economic growth. According to the committee for a Responsible Federal Budget estimated an additional $1.5 trillion will be added to the $10 trillion already forecast for the next decade.

Tax cut has failed to lift the job creation market, particularly for the manufacturing space. Well, the prime motive behind the trade was to create more manufacturing jobs. A trade war will never create jobs rather would create problem and inflation for the US government. Mr. Trump did not understand that it was more of the currency valuation which created the problem for the deficit.

A stronger dollar acts as a price increase for U.S. goods sold abroad while making imported products less expensive for Americans.  According to the International Monetary Fund Trump’s tax and spending policies also are driving the dollar higher, along with widening the trade deficit which leads the dollar the most overvalued of 14 major currencies.

The dollar has risen more than 7 percent this year against the currencies of major U.S. trading partners, part of a 22 percent gain since the end of 2013, according to the Bank of International Settlements index.

The tax cut and trade war was decided to create more jobs but the reality is that it was found that only 6% of businesses in the service sector, which makes up the largest chunk of the US economy and employment in the country, reported changes in investments and hiring due to the GOP tax law.

If one's competitiveness comes under threat and failed monetary strategies would lead to a shifting of jobs and employment and that’s what happened in the US. Between 2001 and 2017, Chinese trade destroyed 3.4 million American jobs, three-quarters of them in manufacturing. This is mainly due to the currency factor which has lead American producers to be less competitive and hence in order o catch the competitive market flight of jobs and opportunities created the loss of a job. This loss of a job cannot be replaced through trade war.

The global economy is heading for a serious deadlock where political imbalances and a poor decision would spook a slowdown which will slowly kill the citizens over the long term.  The world is not at all ready for facing another recession.


Now if Mr. Powell is thrown out then that would create short-term jitter but the major impact will be felt in the long term.

Monday, December 24, 2018

CRUDE OUTLOOK@2019..Do You Agree


Crude prices have come down and it is a double Christmas for the Importing countries. But for the global economy and particularly for 2019 it does not seem to Happy New Year. Falling prices creates problems for exporting countries. Currently, the shale producers are under pressure a cutting aggressively on investments for 2019.

The US has replaced the Gulf countries in terms of production. Whatever investments were done in 2017 and 2018 by the US shale a producer have fetched returns but this does not support for 2019. Currently U.S. crude output 16 percent to about 10.9 million barrels per day for 2018, above Saudi Arabia and Russia. Production has been expected to rise 11 percent more in 2019 as large oil firms and independents added wells this year. 

2018 is gone and before going it has given a clear indication to the oil producers to be at alert. There are many factors which are ruling the demand outlook for 2019 but prior to that one needs to know how the oil producing companies in the US are looking ahead.

Fall in investments drags down the consumption and creates unemployment. Don’t forget that many of the shale companies have to file for Bankruptcy when crude below $30/barrel in the last 3 years.
Currently, many US shale companies are struggling and cutting down on 2019 investments. Centennial the company plans to cut its 2019 capital budget by about 15% compared to 2018 while increasing production. Service costs of the industry have increased by about 35% whereas salaries have gone up 100% from 2016.

Goodrich Petroleum Corp last week also cut its 2019 capital spending plan by US$40 million and Abraxas Petroleum Corp said it has scrapped a US$108 million budget draft. Borrowing cost has gone up significantly as interest rates are going up and hence its double sword problem for the producers.

Based on the current supply strength and the war between cut down of production I will not be surprised if an emergency meeting of OPEC is being held to cut down production further. Once the decision to cut down and further cut down kicks in followed with a drop in US investments in crude production the prices will shoot to $80/barrel. This might sound lunatic but the other logical reasoning is that short positions of crude are now getting winded down and hence leaves more opportunity for an increase in price. All eyes are on the Month of January 2019 where OPEC and Russia agreed to cut joint oil production by 1.2 million bpd. The deal is set to take effect this coming January. Yes, of course, one weapon which can change the climate is Mr. Trump-Iran. If Mr. Trump goes wild on Iran and its sanctions or any new fresh sanction on any country the crude will rebound and OPEC will not have to intervene much.

The Demand Outlook@2019

The demand for crude from China for the US remains bleak. China has many options and they are least interested to have US production at their door. US-China trade war, Brexit slowdown, Germany (amid political uncertainty), Italy’s current growth-debt-political dynamics and its collision course with the European Commission over budgetary issues. Further global central banks are gradually withdrawing easy monetary policy which will increase the borrowing costs for firms and consumers in both developed and emerging economies in 2019. This would also place the possibility of a further rise in long-term bond yields. 

Don’t forget that the Chinese economy, which accounts for around 15-16% of global GDP and whose growth prospects matter significantly for emerging markets, is under pressure which exerts pressure on the global economy.

 The most interesting thing will be how deep the OPEC cut down and how the global demand places pressure on the production facility. The fear of recession is more due to the many factors which have been planted in 2018 as seeds. The Trump administration will lose its monopoly and hence decision making and rest of the things will find lots of glitches in the upcoming 2019.  

The point is clear either Trump uses some strategies to keep the price increase so that they survive or else the OPEC does something to keep prices up but the final demand depends upon global economic growth-which seems to be a tough outlook for 2019.

Saturday, December 22, 2018

GOVERNMENT CREATES TAX EVADERS...SALARIED SEGMENT SERIES 1

GOVERNMENT CREATES TAX EVADERS...SALARIED SEGMENT SERIES 1

Cost Accountants plays a pivotal role in the Indian taxation system. I write this to draw their attention to one of the social issues where the society imbalances happen due to taxation rates. Taxation plays a pivotal role in uplifting the consumption, living standard and eliminates poverty from the society. Taxation can create poverty and can bring down the living standard of the society. We the government create Tax evaders through improper taxation slabs allocated within –Farmers, Salaried and Non-Salaried. Indian taxation system plays a pivotal role only for the government to attract vote bank and give less benefit to society. 

A simple consumer and Businessmen have different expectation and roles towards the society hence the taxation have to play that role. But in India, I find the salaried people are treated in a different way and farmers are treated like species living in Mars and rest all struggles down the line.  Taxation in India is being used as a tool for getting the Chair for the 5 years term. I will discuss on this topic on a broader phase in this and upcoming series to enlighten the government and other study houses to create an impactful budget where the purchasing power of the economy grows and development of the society improves through direct tax slabs. 

Today again the government of India finally the election based tax strategy came into action.   The GST which has been a revolution for the Indian taxation system has now been used as vote attracting strategy.  Goods and Services Tax (GST) Council reduced tax rates on 22 items, out of which seven are from the highest slab of 28%.

 Six items - such as pulleys gearboxes, monitors and TVs (up to 32 inches), digital cameras and video game consoles - moved from 28 % to 18 % while one item - parts and accessories for carriages for people with disabilities - moved from 28 % to 5 %.GST on movie tickets costing up to Rs 100 was reduced to 12% from 18%; tickets over Rs 100 will now attract 18% GST, against 28% earlier. This rate cut will cost ₹5000-5500 crore per annum.

Every government across the globe use tax rates and loan waiver as the tool to attract votes and create a long-term hindrance on the fiscal condition. We are now all waiting for the salaried segment of the society where tax rebate and increase in deduction levels are being focused. But I doubt that the tax brackets will be enhanced since we all know that the major earning group of people within the society gets an average salary above Rs 2.5 lakhs hence giving them a leeway will be a significant cost to the economy. On the other side even if they get the benefit the government will tax them in the other way.

Giving benefits to the business is ideal for the growth of the economy but giving benefits of taxation in term of improving the living standard should also be focused equally. One must understand that mere tax benefits to the business and trade will not be sufficed for improving the society. If the citizens are taxed at a higher rate and through numerous ways then purchasing power comes down and hence living standard does not improvise.

For improving the society and improving the living standard government does not need to give subsidy. They can simply reduce taxes and give more benefits through tax slabs so that the middle class of the society improves and simultaneously the poverty level eliminates. The ones below the poverty lines should get the opportunity to come out of the same and this can only happen when the direct taxes are brought down and citizens have more savings in their hands.


The salaried taxpayer's number is just increasing day by day based on the various government statistical reports. During a three-year period (the assessment year 2014-15 to 2017-18), the number of salaried taxpayers has increased from 1.70 crore (assessment year 2014-15) to 2.33 crore (AY 2017-18). This is a rise of 37 percent. This increase is good for the economy but giving them leeway will be a bigger opportunity to improve the living standards and improvise the society. 

Non-filing of income tax is also due to the same blessing of improper allocation of tax rates within the three buckets-Farmers, Salaried and Non-Salaried.  Yes, I repeat what I said at the beginning. In simple words government creates tax evaders since through evading tax they keep their living standards improvised particularly in a country like India.

Monday, December 10, 2018

THE JOURNEY FROM RAGHURAM RAJAN TO URJIT


Well, Raghuram Rajan went where his 2nd  term was not extended which was highly required and now Mr. Urjit Patel immediate resignation. Shock for the global economy and loose of the face in front of the global central banks. Both the incident happened during the current government. A lot of suspicion behind such an immediate resignation but the main factor is that a certain segment of the economy should be given an autonomous free hand where any influence should be avoided. 

In the history of the Indian economy, this is the 3rd case where a Governor did not serve his full term. The other two resignations both happened before 1960, with Sir Osborne Smith and Sir Benegal Rama Rau quitting before the end of their tenures.  The government is simply slapped with this resignation. It shows very clearly that any central Bank Top position cannot be influenced by any government or from a political aspect.

Since 1992, all RBI governors have received full-five year terms. These include R.N. Malhotra, C. Rangarajan, Bimal Jalan, Y.V. Reddy and D. Subbarao. Under the Modi government, Raghuram Rajan and now Urjit Patel has not served five-year terms.

  In my many previous articles, I wrote that neither any auditing standard neither any regulation can control the influence of political system on the banking industry.

Well, the prime reasons for the resignation are many but among them, the major cause for tension between the governor and the finance ministry was a reported demand by the central government to pay a higher dividend from the RBI's reserves. The RBI has an excess reserve of Rs. 3.6 lakh crore. The central bank officials had opposed the move on the grounds that the reserves were required for maintaining the country's financial stability.  Well if there is a global liquidity crunch of another recession then this surplus of RBI will be injected to save the economy from such worst situation. The current trade war and rising crude prices followed with rupee depreciation create immense pressure on the fiscal condition of the Indian economy. RBI is well placed for its decision.

Well, economy and politics are different subjects when it comes to National interest.

These resignations raise many fingers and question about the strength of influence of the government or political influence on the banking industry. There is no audit system to control such influence and block the loopholes.

We knew later on that what Mr. Raghuram Rajan wanted and communicated to the government for the NPA resolution and also the various policy reforms required for the Indian banking system. In a similar fashion one fine day, we will come to know what made Mr. Urjit Patel resign and go away in such a hurry. The current government behaviour towards the central bank chiefs is an indication that they are reluctant to go with macroeconomic and monetary theory and more inclined to develop their own theorems.

The latest fiasco between NBFC-RBI –Govt raises many questions that the central bank is hardly given any liberty in its decision-making process. The biggest question which comes in mind is that does RBI have any independence in its policy decisions. Why did the present government behave in such a way where Raghuram Rajan and Urjit both went off like this way.

Why does RBI have to inject liquidity within the NBFC segment? Does the NBFC situation is worst enough and from the back end it’s being repaired?  Well, one of the clear roads which can be seen is that as the general elections are coming up these NBFCs plays a huge role in funding the election. Rest I don’t need to elaborate.

This is the same influence which created the NPA of around Rs 10.39 lakh cr. The influence of the political system on the banking industry is not new. We have seen in the US that how the mortgage carnage was created under the leadership of many US Presidents. India is not apart from such acts.

We all know how the PSU banking industry moves under the guidance of the government are the last several years. The senior position of the banks is being filled under the influence of political recommendation. This recommendation comes on the basis of providing loans to leveraged companies who are the parents of NPA.

This is a matter of shame for the Indian economy that such high-level governors have moved under such situations. The Global investor community and various assets class come under immense threat from this sudden resignation.

The domestic, as well as the FII sentiments, are now on the verge of collapse after this immediate action of the governor.


His resignation is a question mark on the Indian economy. 

Sunday, December 9, 2018

US-China 90days Deadline …is the time taken by U.S to save US Farm Bailout


Well, 2 years have passed for Mr Trump and now it’s going to be a high priority of closing the trade war or else intensifying the same. He has now a lot of pressure since he has promised several times in the last of a couple of years that he will bring down the deficit with China.  If he wants to continue his term during the next election he has to do something with China. At the same time, he has to manage his rural vote count and cant be dependent solely on US corporate vote banks.

He cannot afford to have a healthy relationship with China since that will impact his position. On the other hand, the US economy is more dependent on Chinese manufacturing. The latest economic data reflects the same story. The gap between US imports and exports grew 1.7 per cent month-over-month to $55.5bn, the most since October 2008 and the fifth straight month of deficit expansion. Data for September was revised to show the deficit rising to $54.6 billion instead of the previously reported $54.0 billion. Consumer goods imports, increased by $2.0 billion to a record high of $57.4 billion, boosted by a $1.5 billion jump in imports of pharmaceutical preparations.

Much of the import happened due to the fear of tariff hike post 1st January 2019. But this fear belongs to what? US economy has turned into a service and banking industry whereas the share of manufacturing is secondary. US economy faces many problems which will not support the manufacturing sector to grow.

The US lacks skilled manpower further in a recent statistical survey by the joint Deloitte-Manufacturing Institute study finds that more than 4.6 million manufacturing jobs need to be filled in the next 10 years. About 2.7 million vacancies will be left by retirees and almost two million other new jobs will come with expected economic growth. Yet only 2.2 million likely will be filled, the study says, leaving more than half open.

In addition, according to the report, an ongoing skills shortage resulting from wider use of advanced technology could also mean that up to $2.5 trillion in manufacturing economic output may be at risk in the next decade.
This what happens when economic growth is being focused on financial industry growth, the mortgage industry and service industry growth. The US will remain dependent on foreign import. The import may come from China or may be formed any third world or developing economy but at the utmost it will take another decade to have its own manufacturing base.

If US 90 days deadline fails then the impact of the failure will be more on the US rather than China. There will be two scenarios where the US-China Trade war might take its shape.

1)      These 90days truces will be taken as a shield by the US economy and trump to rework on the deficit where US inflation is not affected.  Trump will use to place agri and farm products to be the negotiation instrument in exchange for Chinese import.

2)      In order to save his own face from his earlier promise, he will end the 90 days timeline with zero results.

Trump now has to face the challenge of controlling the inflation once that remaining tariff is being hiked. His own country agri and farm sector are under immense threat. Farms that produce corn, soybeans, milk and beef were suffering due to low global demand and low prices.  In September, the government cut $25 million worth of bailout checks to the agriculture industry. Farmers in Illinois, Indiana, Iowa, Kansas and Minnesota have been the biggest recipients of assistance. As per the U.S.D.A. soybeans, wheat, corn, dairy and hogs being the goods most in need of support.  This is the grey area where the US or rather Trump have to work so that it can safeguard.  The farm industry is battling with rising interest rates and hence the topping of a trade war has made it impossible for the sector to maintain its growth.

The biggest threat for Trump is now to manage the rural vote. The question for 2020 is whether rural voters will continue to swallow the continuous stream of lies they’ve been fed by a fast-talking city slicker.

The Wisconsin Farmers Union, representing small- and medium-sized farms, said a 55-cow dairy farm would receive $725 from Trump’s bailout while losing some $36,000 to $48,000 this year. On the high end, a 290-cow dairy farm would get $4,905 but could lose as much as $400,000 this year. In the first round of payments, 11 of the state’s largest corporate farms received between $50,000 and $81,000. But, the average payment for Wisconsin farmers was only $2,145, with 237 of them receiving less than $100 each.

According to the report of Agriculture Department’s economic research service predicts net farm income in the United States this year will fall by $9.8 billion, to $65.7 billion, a 13 per cent drop from 2017. The mostly new list of negotiation of products would come where the US will try to safeguard the farm and agri sector.

Saturday, December 8, 2018

FRANCE FIASCO SPEAKS SOMETHING ELSE CAN YOU HEAR IT PART 1


Government across the world should understand that whimsical policies will not be accepted by the people. The 2008 recession and post that one lesson which has been learned by any generation of any age is that how and where the crisis is happening and which policies are governing the same. Reforms do not need sacrifices. This is the wrong myth developed by the capitalist mind. Many strategies can be developed to create new growth momentum provided complex trade deals and economic ties are cut out. The major concern for the society across the globe is the learning and the message being given post-2008 recession about providing a proper living standard.

You create austerity policies and expect people to suffer. You don’t cut down on expenses and you increase taxes and expect people to accept are now old traditions. People are now more connected and more knowledgeable than what it was in the last 10 or 15 years. Smartphone and technology have changed the landscape of connectivity. I am sitting in India is supporting those who have come up on the street against the France policy of increasing taxes on fuel.

 The world is yet to come out of the 2008 crisis although cooked economic numbers and stock market strength are not the real growth post-2008. Most of the economies are struggling with growth and sustainable growth has become a dream.  Post-2008 Economic policies malice has led to a revolt within the next generation. They are unemployed and unemployment never gives a good standard of living.

The ILO unemployment rate for metropolitan France was 9.1%, unchanged from the second quarter. The youth unemployment rate, which applies to the 15-24 year-olds, also increased to 20.6% from 20.2% in the previous quarter. If one digs further into the economic data of France one will find that the top 20 percent of the population earns nearly five times as much as the bottom 20 percent.

You cut taxes for the rich to make them richer and you tax the poor for paying the gap. France has done the same thing. The recent tax cut policy of France has led to €3.2 billion, or $3.6 billion of less amount of revenue the state received this year. France has a value-added tax of 20 percent on most goods and services. Over this tax, you impose more tax on a particular product or asset which is going to impact the society is bound to face a revolt.

Declining living standards and eroding purchasing power have now turned into a violent revolt. People will not accept whimsical policy burdens impacting the life of the citizens. When easy economic policies and steps can be accepted to safeguard the citizens then why cruel policies are taken into account.

The median monthly income of France is about 1700 euros or $1,930. France is the third biggest economy in Europe after Britain and Germany but its economic growth is very slow. Large numbers of permanent jobs were wiped out, especially in rural and former industrial areas. New jobs numbers which are being cheered by the readers are only temporary or contractual jobs and have nothing permanent in the same. This weak job market leads to more pain for having a healthy family and living standard. The promises by a political party are at risk now. The Britain Referendum speaks enough that any government can be thrown and people will not accept any policy which is detrimental to the citizen’s growth.

The point is clear that economic growth is not above the citizen’s growth. If the society does now grow and delve into more pain in the long term then imbalances and revolt are bound to come. Remember that in the last 10 years many every citizen of every age has gone through mixed phases of life and hence taking them granted for accepting any policy which will impact their life is now a page of history.


In many countries, the tax structure for the wealth is designed in such a way that they only become rich every year whereas the middle class of the society delves into below middle class or poverty line. Society imbalances are now becoming wider and each day its getting widening that now it’s going to beyond control of any government.

Cost management highly Required for Farmers Series 1


Before I begin I would like to highlight that I have segmented the subject so that one can get a better conceptual idea of the various angles of the Indian farm production and farmers problem and cost management requirement. When farm commodity prices fall and costs of production rise, farmers can get caught in a “farm price-cost squeeze. 

Despite having various programmes where farmers can make a profit and sustainable growth from farm production we are still at the point where too many producers don’t understand their cost structure Farmers struggle for better pricing and cost management does not seem to end. 

The farm waiver has become now habit to save from cost and low price burden for the end product. Lower commodity prices have forced many farmers to eat away at working capital. If the farmer’s cash flow is negative and one run out of working capital, one has a real problem.

Farmers are just waiting for another waiver to be declared soon as elections are around the corner. This has become the most common thing for the farmers where they very well that farmer loan waiver is the best tool used by the Indian political system to win votes. The biggest immediate suffers are the NBFC and the Banks and in the long term, the biggest suffers will be the taxpayers. The problem with the farmers is the pricing of the products which are available and based on that designing the product mix accordingly. We find that product mix concept is lacking as well as target-based production and pricing link is missing.

Another factor which is affecting the farmers is that the low prices for the farm output. When this happens they look for waiver schemes.   Waiver of loans has impacted the Indian economy in many ways where the deficit is being met from the common people who pay taxes. The Union Budget reflects this story in many ways.

In some cases, it is being found that farmers are doing less production due to irrigation or poor farm prices. The government is just not able to get any justification as the political war is just busy focusing on highlighting the issue and not on the solution. As a result, many farmers have stopped production of many crops and hence price has gone up. The government is still silent despite prices going up since they want high prices for these crops so that middlemen could have their shares.

This is game which needs the attention of the pricing strategy of crops so that this loan waiver could be avoided. The Indian government has come up with the new policy aims to double the nation's farm exports to $60 billion by 2022 and gives a "greater thrust" to value-added products, promotion, and branding of India's produce. All restrictions on the export of organic and processed food items will be lifted. These include mandi (wholesale) taxes, minimum export prices, duties and quota restrictions.

Now for doubling the farm production and giving them space export market is no doubt is winning situation but how many farmers are literate enough and how many of the farmers can really en-cash the opportunity is going to be the next hurdle for the growth. From government to technocrat all are failing to understand that the education level of the farmers in terms of export needs to be uplifted. If the level of knowledge is restricted and controlled by a few knowledgeable farmers then the whole motive behind freeing up the framers from the clutches would go for a toss.

I find apart from educating the farmers for export-oriented production the cost management strategies should be imparted. Cost management lessons will improve the production efficiency which leads to improved efficiency in profit margins. In my research, I find that efficient knowledge about crop mix and production mix would be the key way to survive from the plummeting prices of producing any one crop.

The economies of production need to be identified so that every farmer gets proper valuation of its production. A farmer uses various types of ingredients to produce crops. Now cost management You have to understand all of your cost categories, then look at where you have excess. Is it equipment, family living? Should you seek off-farm income, or add custom farming?


As farm production is always volatile hence cost management becomes an imperative tool. As commodity prices began to tumble after 2014, more farmers came to the conclusion they needed better financial skills and hence learning the cost management have become a necessity.

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