Who has rights over a citizen’s body? New twist in Aadhaar controversy

The Centre’s claim that people “can’t have absolute right over one’s body” further reinstated its absolute faith in biometric technology. Its latest defense in favour of collecting biometrics for Aadhaar came during the hearing of three petitions challenging constitutional validity of a change in law that compels people to link Aadhaar with PAN card.

Attorney General Mukul Rohatgi argued that the government was entitled to have details about a person’s identity if it was providing facilities. But one person’s entitlement could mean disenfranchisement for others.

While Rohatgi argues that recent protests over “so-called privacy and bodily intrusion” are “bogus”, others seem to be asking whether privacy is indeed a fundamental right.

Linking right to privacy with Article 21

The Article 21 of the Constitution says, “No person shall be deprived of his life or personal liberty except according to a procedure established by law.”

In 1994, the Supreme Court, for the first time, directly linked the right to privacy to Article 21 of the Constitution and stated: “The right to privacy is implicit in the right to life and liberty guaranteed to the citizens of this country by Article 21. It is a “right to be let alone”. A citizen has a right to safeguard the privacy of his own, his family, marriage, procreation, motherhood, child bearing and education among other matters. None can publish anything concerning the above matters without his consent whether truthful or otherwise and whether laudatory or critical. If he does so, he would be violating the right to privacy of the person concerned and would be liable in an action for damages.”

But the Centre has dismissed any existence of ‘absolute right’, which, in legal parlance, refers to those rights that cannot be curtailed in any way. They cannot be reduced or amended. Just like the right to free movement, speech and expression—which can be curtailed based on an executive order—the right to privacy is also limited.

However, does that give government an absolute right to force citizens into sharing their DNA details?

Centre’s stand

According to Rohatgi the right over one’s body was not absolute as law prohibits people from committing suicide and women from terminating pregnancy at an advanced stage. He also referred to the rule wherein people are required to allow police to measure their breath for alcohol content in drunken driving cases.

Individual’s rights vs State’s actions

While affirming that the examples given by Rohatgi were not appropriate as the case is related to taxation law and not with offence, it stated that a balance had to be maintained between an individual’s right and the state’s actions. “The State has the duty to maintain the liberty of an individual. The State has, more importantly, the obligation to maintain the dignity of an individual. Dignity is an individual right,” said Justice Sikri.

There have been incidents (or some would like to call it exceptions) in the past where individuals were allowed to exercise ‘absolute right’ over their body. The ruling in the Aruna Shanbaug case, upholding the validity of euthanasia, was one of them.

According to senior counsel Shyam Divan, who appeared for the petitioners, “The Constitution of India is not a charter of servitude” as it protects the sovereign power of the people and places limitations on government control. Stating that the Constitution provides for the individual’s autonomy over his or her body, Divan added that it was for the individuals to decide “whether they should part with something as intimate and personal as biometric data for any purpose”.

Earlier Divan had argued that idea of property included all legal rights. “A man’s primary property is his own person,” he said, drawing from Thomas Hobbbes and John Locke—17th-century philosophers who contributed to the concept of individual rights. The Article 21, he asserted, protects the individual’s dominion over his or her body and therefore, the new income tax law went against Article 21.

Pressing concerns

What makes Aadhaar unique is exactly what makes people anxious— fingerprints and iris impressions. All of this is done on the basis of a questionable assumption that there are parts of human body that do not age, wither and decay with the passage of time.

Moreover, there’s no legislation that empowers an individual to appeal in case his rights are affected. According to the Aadhaar Act, any legal action against misuse or theft of Aadhaar data can only be initiated by UIDAI. Hence, citizens are left with no legal recourse, creating an opportunity misuse of the database.

— source downtoearth.org.in

Climate change key suspect in the case of India’s vanishing groundwater

In three short months during monsoon season, India historically receives 75 percent of their annual precipitation. Imagine awaiting this promised, bountiful rainfall and receiving 14 percent less than average. This is what happened in 2015 – and it compounded decades of drought. India is suffering a water scarcity crisis but, until recently, most people believed that over pumping groundwater was the number one reason behind it. Now, a new study published by the Indian Institute of Technology (IIT) Gandhinagar in Nature Geoscience, shows that variable monsoon precipitation, linked to climate change, is likely the key reason for declining levels of groundwater.

India’s rainfall has decreased since the 1950s. When rainfall decreases, so does the water table. By observing climate patterns and well depths, researchers found that groundwater storage dropped in northern India about two centimeters per year between 2002 and 2013. Today, groundwater irrigates over half of India’s crops, but aquifer levels are falling, threatening both water and food security.

India’s groundwater problem is detectable from space. From 2002-2013, a satellite from NASA mapped aquifers around the world. The Gravity Recovery Climate Experiment (GRACE) satellite detects the Earth’s mass below it and uses this data to measure groundwater pumping. GRACE reported that 54 percent of 4,000 measured groundwater wells are declining, some dropping by more than three feet per year.

A warming world has made India’s monsoon season less predictable. During the past century, the Earth warmed 1.5 degrees, largely due to humans’ unprecedented burning of fossil fuels. What appears to be a small change in temperature is causing drastic upheavals in natural patterns. Increased atmospheric temperatures are changing wind currents and causing more frequent and intense storms. In some cases, this is also redistributing rain and intensifying drought.

In India, warmer air over the Indian Ocean has altered the path of monsoons – leaving Indian farmers high and dry the past two years in a row.

There is no singular definition for water scarcity that takes into account the availability, accessibility, and quality of potable water. However, the Falkenmark Indicator (FI) is a popular tool that measures water runoff and population to determine levels of water stress. According to the FI, a country is considered ‘water scarce’ when they have less than 1,000 cubic meters of usable water per person annually. In 2015, analysis using FI categorized India as having ‘absolute scarcity’, with less than 500 cubic meters of water per person annually.

So little water affects security. Last September, protesters set 56 busses on fire in Bengaluru when the Supreme Court ordered that Karnataka must release more water from Cauvery Dam to be used by a bordering state. Retrofitted oil trains deliver millions of liters of water to Lature, a district east of Mumbai. Madhya Pradesh, a state in Central India, deployed armed guards to protect one of its reservoirs after farmers from a neighboring state attempted to steal water last year.

Farmers are on the frontlines of the water crisis with India seeing a serious uptick in farmer suicides. Some estimates put the number of related suicides at 500 in 2015, but the central government only publicly acknowledges that 13 farmers’ suicides were related to water shortages. According to the Government of India, 52 percent of agricultural households were in debt in 2014. Heavy debts have resulted in an exodus of farmers, who are now seeking daily labor in large cities.

“Farmers invest their own borrowed money for sinking bore wells to develop agriculture,” said Secretary R.H. Sawkar of the Secretary, Geological Society of India (GSI). Bore wells are similar to tube wells, long shafts that are drilled into the earth. Electric pumps are used to draw the groundwater through the tube to the surface. Most rural farmers pay a flat fee for unlimited electricity to pump from tube wells, leading to over-pumping.

But farmers don’t have the money, tools, or know-how to drill deeper wells that can access sinking water tables. This creates a serious dilemma in areas where levels drop by almost a meter per year.

“Only rich farmers can effectively pump groundwater from deep aquifers and the urban rich can buy extra water for their luxuries like car washing, [maintaining] lawns near their residence and [using] bottled water for drinking purpose,” said Sawkar.

There are over 20 million tubewells in India today, a technology that enabled the Green Revolution in India. The Green Revolution was a global shift in agricultural production, beginning in the 1930s; it mechanized farming for developing nations and utilized new technologies, like pesticides and genetically modified crops, to feed a booming population. Developing countries could suddenly grow more food on the same amount of land.

When India gained independence in 1947 the central government – along with the Rockefeller and Ford foundations –brought the Green Revolution to India. This meant cultivation of genetically adapted, high-yielding seeds, a deluge of fertilizers, and flood irrigation. Tube-wells proved to be the best way to irrigate more land, since they reached untapped groundwater. But today, annual groundwater pumping removes at least 24 times what was consumed in the 1950s.

“India also inherited Britain’s water policies that were based on water abundance. Any landowner had the right to pump as much groundwater as they wanted… India doubled ag[riculture] productivity between 1972 and 1992 under this system,” said Trevor Birkenholtz, political ecologist at the University of Illinois Urbana-Chapmaign. “In short, there was no groundwater law.”

Laissez-faire pumping is today reflected in the fact that farmers pay a single flat fee for electricity to power tubewell pumps.

The same revolution that once sustained India’s growing population is partly to blame for the cracked and barren landscape that farmers try to cultivate today. According to the World Bank, India’s population tripled since the 1960s, hitting 1.3 billion in 2015. As India continues to battle climate change and overpumping, an equitable distribution for groundwater, if it ever comes, will take considerable intervention.

“This requires strong political will to address this issue, which is lacking,” Sawker said.

Groundwater law and rulemaking falls under the purview of individual states in India. Researchers say that the central government will have a difficult time overcoming this decentralized system, if they wish to establish national water laws. To date very few politicians have fought to limit water pumping.

“No politician wants to be the one that tells farmers – who vote at rates upwards of 85 percent – that they can no longer pump groundwater at current rates,” said Birkenholtz.

It’s more likely that authorities will mandate drip irrigation or restrict the supply of electricity, perhaps through metering, to limit pumping. Using drip irrigation and gaining “more crop per drop” is an efficient alternative to flood irrigation.

Unfortunately, groundwater pumping is only half of the problem. Taking on climate change is equally important in solving India’s water scarcity. Climate change weakens monsoons, groundwater fails to recharge, wells run dry, and families go without water. The future of India’s water security, in part, rests on international agreements to combat climate change like the United Nations Paris Agreement.

“Weather is uncertain by nature, and the impacts of climate change are extremely difficult to predict at a regional level,” explained Wada. “But our research suggests that we must focus more attention on this side of the equation if we want to sustainably manage water resources for the future.”

Today, India accounts for 4.5 percent of global greenhouse gas emissions. Under the Paris Agreement, the country has committed to generating at least 40 percent of its electricity from renewable sources and decreasing carbon emission intensity related to GDP by 33-35 percent by 2030. This means India’s emissions will likely rise, depending on the level of its economic growth.

— source news.mongabay.com by Kayla Walsh

Wolf at our door

The big bad wolf will come. This is what has dictated global climate change narrative for so long. The world has tiptoed around actions that need to be taken at a certain speed and scale to curtail emissions; global agreements have been bent out of shape to appease climate deniers. And in Paris, the world literally scraped the bottom of the barrel to tie up a weak and unambitious agreement to control climate change. All this, because it believed that doing anything more would get the opposition, particularly in the US, riled up.

As a result, the US has made the multilateral world change rules; reconfigure agreements, mostly to reduce it to the lowest common denominator. Then when the world has stitched together a weak and worthless deal, the US has walked out of it. All this while, its powerful civil society and media has hammered home the point that the world needs to be accommodating and pragmatic. “Our Congress will not accept” or, worse, “Republicans will come” has been the common refrain.

This happened in 1992, when in Rio, after much “accommodation” the agreement to combat climate change was whittled down; targets were removed; there was no agreed action. All this was done to bring the US on board. But it walked out. Then came the Kyoto Protocol, the first and only framework for action to reduce emissions. Here again, in December 1997, when climate change proponents Bill Clinton and Al Gore were in office, the agreement was reduced to nothingness—the compliance clause was removed, cheap emission reduction added and loopholes included. All to bring the US on board. Once again, they rejected it.

Then came Barack Obama and his welcome commitment to climate change actions. But what did the US do? It made the world completely rewrite the climate agreement so that the targets are based on voluntary action, not science and the contribution of each country. Each country is allowed to set targets, based on what they can do and by when. It has led to weak action, which will not keep the planet temperature rise below 2°C, forget the guardrail of 1.5°C. This was done to please the Americans who said they would never sign a global agreement which binds them to actions or targets. Paris, fatally and fundamentally, erased the historical responsibility of countries and reduced equity to insignificance.

At all times we have censored the truth of the urgency of climate change; or the need for effective and drastic action by the more powerful and rich countries; or the need to curtail emissions by curtailing or changing lifestyles so that efficiency gains are not lost because of more consumption. The world has restrained its language so that it could get the participation of the most unwilling—the proverbial, and now the real, big bad wolf.

Now that the big bad wolf has come to power, what will the world do?

There is no doubt that Donald Trump is of another shade of this grey. He denies that climate change is happening. He is also certain that the US needs to dig more coal; build more power plants and do everything to ramp up production, which will increase greenhouse gas emissions.

What do we do now? This is the zillion dollar question. Climate change is happening as seen in extreme weather events. It is impacting the poorest in the world, the ones who have least contributed to the stock of emissions in the atmosphere. Will the world now call a spade a spade? Or will it engage in more meaningless censorship so that it woos the undesirable and, in my belief, unchangeable?

I cannot speak for the US civil society, which seems to relish its beltway games. But I do know that we have no option but to push for greater attention and action on climate change. Our priority in India is to reinvent growth without pollution: find ways to urbanise without first investing in private transport systems and then investing in cleaning up the air; or find ways to provide the energy-poor with clean power without first investing in electricity grids that do not reach them. These are our imperatives. Countries like India have the opportunity to do growth differently and we must.

But it is also a fact that the coming of Trump will make it harder for all environmentalists, particularly those working in the emerging countries of the South, to argue that we must stand different. The protectionist agenda will push against globalisation and encourage all to dig deeper and harder to get to the last lump of coal to burn. Forget the climate change crisis. It is tomorrow’s problem.

It is also clear that the coming of Trump will also stop us from scaring ourselves into restraint and self-censorship. The big bad wolf is not coming; it is here. The only way ahead is to confront the reality that the world is getting warmer and the future more insecure and catastrophic. Only then can we hope to change our future.

— source downtoearth.org.in by Sunita Narain

Bad Bank Proposal for India

What Is Jubilee?

Jubilee comes from Judaic Law (Leviticus 25). It is a clean slate to be proclaimed every 49 years (seven Sabbath years—Sabbath means to cease, to end or to rest) annulling personal and agrarian debts, liberating bond-servants to rejoin their families, and returning lands that had been alienated under economic duress (Hudson 2013).

Jubilee is not a religious fiction or ideal as some think it is. It has been traced back to royal proclamations issued in Sumer and Babylonia in the third and second millennia BC. It used to happen quite often, and debt write-offs happen quite regularly even these days (Öncü 2016).

Zero Coupon Perpetual Bonds?

The oldest known perpetual bond in the world that still pays coupon (at an interest rate of 2.5%) was issued in 1624. It was originally floated to raise funds for the repair of a dike by the Hoogheemraadschap Lekdijk Bovendams, a Dutch water authority responsible for maintaining levees (Andrews 2016). As the name suggests, a perpetual bond never pays principal. It pays coupons with some stated frequency on the stated principal (the face value or the price it was issued) only.

But, what if a perpetual bond does not pay any coupon either? At what price would such a bond sell other than zero? How much would it cost to issue the bond to its issuer other than almost nothing?

As crazy as the zero coupon perpetual bond idea may sound, the banknotes we carry in our wallets are essentially zero coupon perpetual bonds. They pay neither coupon nor principal. Yet, they have face values written on them such as ₹100 or ₹500. And, they buy things at their face value.

The most recent zero coupon perpetual bond proposal belongs to the former chairperson of the Federal Reserve Bank of the United States (US), Benjamin Bernanke, and earned him the nickname “Helicopter Ben.” In July 2016, Bernanke proposed to “Japan that helicopter money—in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them—could work as the strongest tool to overcome deflation” (Fujiko and Ujikane 2016).

I will propose zero coupon perpetual bonds to India also. But, not in the way Bernanke proposed it to Japan.

Non-performing Assets in India

The non-performing assets (NPAs) of the Indian banking sector have been on the rise since September 2008, with faster deterioration after September 2009. Interestingly, while the private sector banks were suffering from most of the NPAs in September 2008, from September 2009 the public sector banks started to take the lead, and now, the public sector banks are suffering from most of the NPAs (Unnikrishnan and Kadam 2016).

The deterioration that started in September 2008 continued until the last quarter ending 31 December 2016, and NPAs reached 9.3% of the total credit extended by the entire (public and private) banking system, while NPAs of public sector banks were 11% of the total credit they extended. What is worse is that five of the public sector banks had NPAs of above 15%. The size of the NPAs of the entire banking system at the end of this quarter was ₹6.7 trillion and 88.2% of this amount was on the books of the public sector banks (Mathew 2017).

As noted by Chandrasekhar (2017), the Indian Ministry of Finance’s Economic Survey 2016–17 recognised that under normal circumstances this would have threatened the banks concerned with insolvency, perhaps triggered a run on the banks, forced bank closure, and even precipitated a systemic crisis. Chandrasekhar (2017) also noted that according to the Survey, since there is a belief that these banks have the backing of the government, which will keep them afloat, the bad loan problem has not, as yet, become a systemic crisis. Whether the bad loan problem in India has become a systemic crisis or not can be debated. However, that India needs to decisively resolve her banks’ stressed (non-performing, restructured or written-off) assets with a sense of urgency in the way the newly appointed Reserve Bank of India (RBI) Deputy Governor Viral Acharya mentioned in his 22 February 2017 speech cannot be.

Proposals on the Table

A “bad bank” is a corporation established to isolate stressed assets held by a bank or financial institution, or a group of banks or financial institutions. It might be established privately by the bank or financial institution, or the group of banks or financial institutions, or by the government or some other official institution.

There have been two main proposals to tackle the stressed asset problem of the Indian banks since the beginning of this year. The first one was the “bad bank” proposal made in the Survey:

NPAs keep growing, while credit and investment keep falling. Perhaps it is time to consider a different approach—a centralised Public Sector Asset Rehabilitation Agency [PARA] that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt.

The PARA to resolve the stressed assets of the public sector banks is the “bad bank” the Finance Ministry proposed. The Survey gives a detailed description of how the PARA would work and mentions that the funding for PARA would come from three sources: (i) government issued securities; (ii) capital market; and (iii) RBI. The first two of these sources are not unusual. However, the third source is rather unusual (although not novel as the Survey documents):

The RBI would (in effect) transfer some of the government securities it is currently holding to public sector banks and PARA. As a result, the RBI’s capital would decrease, while that of the banks and PARA would increase. There would be no implications for monetary policy, since no new money would be created.

The second proposal came from Acharya on 22 February 2017. Although rumour has it that he was hired for his advocacy of “bad banks,” Acharya clarified that his suggestion is not akin to creating a “bad bank,” but is more to create a resolution agency. He suggested two models. A Private Asset Management Company (PAMC) and a National Asset Management Company (NAMC).

Under the PAMC, banks would come together to approve a resolution plan based on proposals from a variety of different restructuring agencies and this would also be vetted by rating agencies. As he explained, there

are ways to arrange and concentrate the management of these assets into a single or few private asset management companies (PAMCs), at the outset or right after restructuring plans are approved. These companies would resemble a large private-equity fund run by a team of professional asset managers. Besides bringing in their own capital, they could raise financing from investors against equity stakes in individual assets or in the fund as a whole, i e, in the portfolio of assets. (Mathew and Dugal 2017)

As Acharya argued, the PAMC would be more suitable for sectors such as steel and textiles where some sectoral recovery is in sight whereas the NAMC—in which the government would play a larger role—would be more appropriate for infrastructure investments such as power where the assets may appear to be unviable in the short to medium term. However, even the NAMC would bring in asset managers such as asset reconstruction companies (ARCs) and private equity to manage and turn around the assets, individually or as a portfolio, although the government may retain a minority stake in the assets.

To sum up, while the finance ministry proposed a mainly public solution, Acharya proposed mainly private or market solutions to the problems.

My Criticism of the Proposals

Although given the urgency of the situation both proposals have many merits, many have attacked both the proposals for a multitude of theoretical and ideological reasons. This is normal of course because economics is not even the “dismal” science as some call it. What is wrongly called economics these days used to be correctly called political economy as the following title from the 27 February 2017, Times of India demonstrates (Sidhartha 2017): “Few Supporters in Govt for ‘Bad Bank’ Proposal.”

Here is a quotation from this article.

Sources in the finance ministry, however, said that the issue is best left to banks as the government did not have the required resources to meet the capitalisation needs. In addition, it does not want to be seen bailing out companies and banks when the same resources can be deployed elsewhere.

This is what I mean when I say there is no economics but political economy. Under these conditions, it would be unfair to criticise either of the proposals, but I have to criticise both on one account.

It is that both of the proposals operate under the implicit assumption that “banks are financial intermediaries.”

The problem is that banks are not financial intermediaries. They are money creators. Banks create money either by extending credit or by buying government securities while in the process creating corresponding deposits. In other words, banks do not collect or mobilise deposits to lend them out. Although banks can collect deposits from each other, when we look at the entire banking system as a single bank, there is no other place from which this bank can collect deposits except the holders of currency in circulation. That is, the banking system does not collect or mobilise deposits first and then extend credit or buy government securities. It is the other way around.

Lost Century in Economics

In an article titled “A Lost Century in Economics: Three Theories of Banking and the Conclusive Evidence,” Werner (2016) argues the following:

During the past century, three different theories of banking were dominant at different times: (1) The currently prevalent financial intermediation theory of banking says that banks collect deposits and then lend these out, just like other non-bank financial intermediaries. (2) The older fractional reserve theory of banking says that each individual bank is a financial intermediary without the power to create money, but the banking system collectively is able to create money through the process of ‘multiple deposit expansion’ (the ‘money multiplier’). (3) The credit creation theory of banking, predominant a century ago, does not consider banks as financial intermediaries that gather deposits to lend out, but instead argues that each individual bank creates credit and money newly when granting a bank loan. The theories differ in their accounting treatment of bank lending as well as in their policy implications. Since according to the dominant financial intermediation theory banks are virtually identical with other non-bank financial intermediaries, they are not usually included in the economic models used in economics or by central bankers. Moreover, the theory of banks as intermediaries provides the rationale for capital adequacy-based bank regulation. Should this theory not be correct, currently prevailing economics modelling and policy-making would be without empirical foundation. (emphasis added)

In a working paper by the Bank of England titled “Banks Are Not Intermediaries of Loanable Funds—And Why This Matters,” Jakab and Kumhof (2015) describe the money creation process as follows.

In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation. That is, they create deposits of new money through lending, and in doing so are mainly constrained by profitability and solvency considerations.

In this paper, Jakab and Kumhof quoted Alan Holmes (1969), a former vice president of the New York Federal Reserve, who wrote the following: “In the real world, banks extend credit, creating deposits in the process, and look for the reserves later.”

How Is Money Created in India?

In 1969, Holmes was talking about the US. The situation is somewhat more complicated in India because there have been two liquidity requirements imposed on the banks by the RBI after independence. These two requirements are called the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR).

Prior to further progress, let me clarify what the RBI means by “cash.”

In the language of the RBI, “cash” does not mean just rupee banknotes, and the rupee and smaller coins. Beyond these three are the “bank deposits” with the RBI which are just some numbers on some computers these days. So, rather than “cash” and consistent with the rest of the world, I will use the word “reserves” for these “bank deposits” with the RBI and save the word “cash” to mean what we ordinary people think “cash” is in our daily lives. The economists call the sum of cash and reserves, base money, whereas the sum of cash and deposits is broad money. It should be mentioned that while cash and deposits can buy things in the real world, reserves cannot. Reserves are common currency only among the banks and the RBI, and cannot go out of the banking system.

To sum up, the CRR is what the most of the rest of the world calls the “required reserve ratio.” As Holmes (1969) described for the US, in India also, banks first create deposits by extending credit or by buying government securities, and then look for reserves to meet the CRR requirements. The most recent banking data available on the RBI website—as of 17 February at the time of writing—shows that the reserve to deposit ratio was about 4%, which is consistent with the current CRR requirement.

And, had the CRR been the only liquidity requirement, the money creation process in India would have been no different than the money creation process in the US, for example. What sets India apart from most other countries is the SLR requirement. Because, the SLR requirement can be met not only by holding “reserves,” but also by holding gold and “government approved securities.”

When we look at the SLR historically, we see that the commercial banks in India have met their SLR requirement by holding “government-approved securities” mostly. In addition, if we look at the earlier mentioned RBI data we see also that above 99% of the “government approved securities” were “government securities.” This comes as no surprise because these securities are very safe and pay high interest rates.

Further, as of the same date, the credit-to-deposit ratio was roughly about 70%, while the government-approved securities-to-deposit ratio was roughly about 30%, and these two ratios nearly added up to 100% despite the expected measurement errors. Given that the current SLR requirement is 20.5%, this also indicates that the banks are holding way more government securities than they require. This is understandable, because the banks need non-SLR government securities to repo (or repurchase option) with the RBI to obtain reserves to meet their CRR requirement.

To sum up, while the CRR is a tool of the RBI to manage the liquidity in the banking system, the SLR is a tool to manage the liquidity in the economy, although nowadays the RBI uses the CRR to manage the liquidity in the economy also. To clarify these further, let me summarise the 17 February RBI data in Table 1.

And, let me add to this that the total of all outstanding government securities is ₹47.2 trillion.

These data show that the commercial banks in India hold about 70% of all outstanding government securities, and hence the SLR is not only a monetary policy tool, but also ensures that banks in India lend to the government. Furthermore, the availability of government securities puts an upper bound on the deposits the Indian banks can create.

If the banks buy all of the government securities and use them to meet the 20.5% SLR requirement only, then the banks in India can increase the aggregate deposits to ₹230.4 trillion by extending additional credit. In this case, the credit extended to the rest of the economy other than the government would be ₹183.2 trillion. This is the maximum amount of credit that can be extended to the rest of the economy, if the government does not issue new securities and the SLR remains 20.5%. Further, in this scenario, the RBI has to increase the reserves to ₹9.2 trillion so that the banks can meet their 4% CRR requirement.

Of course, the above is just a hypothetical scenario I constructed to give the readers some idea about how these two ratios, reserves, and government securities affect the availability of money and credit to the economy.

My Bad Bank Proposal

In light of the discussion so far, I now make my “bad bank” proposal for India and, for want of a better name, call it the Bad Bank.

(i) The Bad Bank would be promoted by the Government of India and capitalised with zero coupon perpetual bonds the government would issue;

(ii) The Bad Bank would swap the zero coupon perpetual bonds with reserves the RBI would create. These reserves would be excess, because they would not back any of the deposits of the banking system;

(iii) The Bad Bank would swap the excess reserves with the banks (public and private) for the bad loans.

Two things will happen to the banks (not just public, but also private):

(i) They are relieved of the bad loans;

(ii) Since the excess reserves have zero risk weights, their capital ratios go up so that there is no need to recapitalise any of the banks.

Furthermore, although the base money was increased by the amount of the issued zero coupon perpetual bonds, since the existing deposits remained intact, the broad money neither increased (no immediate inflation) nor decreased (no immediate deflation). In addition, this operation would cost nothing either to the Government of India or to the Indian taxpayers, because the Government of India will pay neither coupon nor principal on the issued zero coupon perpetual bonds.

At this point, a decision has to be made regarding what to do the with the bad loans. One possible decision is to erase all of the bad loans against the Bad Bank’s equity and dissolve the Bad Bank. This is what I call a partial Jubilee. It is partial because in a full Jubilee, all of the debts in the country would be annulled and the country would start from a clean slate.

Of course, this is not the only possible decision. As in the case of the NAMC proposed by Acharya, the Bad Bank might bring in asset managers such as ARCs and private equity to manage and turn around the assets, individually or as a portfolio, and the like. Other possibilities can also be considered.

Let me conclude by noting that although what I proposed above solves the immediate stressed asset problem of the Indian banking system cheaply, it does not solve any other problems, be those economic, financial, political, social and the like. It only gives the country some breathing time so that she can attack and tackle all of her other problems.

Last Words

One last issue I would like to discuss is the excess reserves the RBI created. As readers familiar with the quantitative easing (QE) programmes implemented in the US would recall, many have expressed concern that the large quantity of excess reserves created through the QE programmes will lead to an increase in the inflation rate unless the Federal Reserve acts to remove them quickly once the economy begins to recover.

In an article titled “Why Are Banks Holding So Many Excess Reserves?” Keister and McAndrews (2009) addressed this issue and argued that if interest is paid on the reserves, this allows a central bank to maintain its influence over market interest rates independent of the quantity of reserves created by its liquidity facilities. This can also be considered in India. Furthermore, despite all these concerns in the beginning, no significant inflation took place in the US and, indeed, in 2015, the US was flirting with deflation.

And, of course, there is the luxury of the SLR that the RBI can use to manage the liquidity in the economy.

— source epw.in by T Sabri Öncü

US ‘Has the Gall’ to Ask Cambodia to Pay War Debt

A U.S. Air Force Boeing Stratofortress dropping bombs over Vietnam. | Photo: Wikimedia

Almost half a century after dropping 500,000 tons of explosives and killing hundreds of thousands of people in Cambodia, the United States seems to be demanding that the country pay back US$500 million in war debts, a move that sparked outcry across the political spectrum in Cambodia.

“To me, Cambodia does not look like a country that should be in arrears … buildings coming up all over the city, foreign investment coming in, government revenue is rapidly rising,” William Heidt, the U.S. ambassador to Cambodia, told local newspaper Cambodia Daily.

Since the elections of President Donald Trump, the Cambodian government has been urging Washington to cancel the debt, but the ambassador dismissed any plans to do so by the new administration.

“I will say that the issue of cancellation … that wasn’t on the table when I was here in the 1990s. It has never been on the table since then. So we have never discussed seriously or considered canceling that debt with Cambodia,” he said, while also calling for a deal to be struck between the two countries for debt payment.

Speaking at a conference earlier this month, Cambodia’s Prime Minister Hun Sen, a former commander with the Cambodian communists, slammed the ambassador for his comments and recalled the atrocities committed by the U.S. in the 1970s.

“They dropped bombs on our heads and then ask up to repay. When we do not repay, they tell the IMF (International Monetary Fund) not to lend us money,” Sen said, according to local media. “We should raise our voices to talk about the issue of the country that has invaded other (countries) and has killed children.”

In the late 1960s, the U.S. had given US$274 million loan, mostly for food supplies to the U.S.-backed Lon Nol government who had taken over the country in a coup a year earlier. The debt has almost doubled over the years as Cambodia refused to enter into a repayment program.

As Nol fought against the Khmer Rouge between 1970 and 1975, U.S. fighter jets carried out secret carpet-bombings against the group in support of the right-wing government killing more than 500,000 people, many of them women and children.

After the Khmer Rouge took over the country in 1975, more than 2 million people died as a result of political executions, disease and forced labor.

The idea that Cambodia owed the United States money is rejected by many, including those who witnessed the massacres.

“He (Heidt) has the gall to demand the ‘loans’ back even though either the Khmer Rouge or the current government have been in power since 1975, that this money was still due,” James Pringle, who served as the bureau chief for Reuters in the Vietnamese city of Ho Chi Minh City during the invasion of Cambodia, wrote for The Cambodia Daily.

“Cambodia does not owe even a brass farthing to the U.S. for help in destroying its people, its wild animals, its rice fields and forest cover.”

— source telesurtv.net

Assessing the GDP Estimates in the Light of Demonetisation

The Second Advance Estimates of National Income, 2016-17 produced by the Central Statistical Office (CSO) show that demonetisation has had no impact on the country’s economic growth. According to the CSO, Indian economy grew by a healthy 7% in the third quarter of the current financial year, quite contrary to even the expectations of even the Finance Ministry. The Economic Survey had observed, “demonetisation has had short-term costs”, which “real and significant”, and added that the costs would be high especially for those who are dependent on the “informal and the cash intensive sectors”. Given that the informal sector contributes almost 50% to GDP and supports over 90% of the workforce, the Economic Survey alluded to the serious adverse impact of demonetisation.

The GDP growth estimates unveiled by the CSO raise three pertinent issues. The first is whether the GDP growth estimates can be adequately explained. The second is whether the estimates are in sync with the government’s overarching objective of maintaining the growth momentum. The third and perhaps the most important issue is whether GDP growth rate is an appropriate indicator of the economic well-being of the common woman in the country.

According to the CSO, Indian economy grew a tad slower in the third quarter as compared to the immediately preceding quarter. However, this slow-down, from 7.4% to 7.1%, was much less than predicted by the critics of demonetisation. Further, during April-December 2016, GDP growth was 7.2%, which, once again, exceeded all expectations. Here lies a conundrum: the main components of GDP do not quite explain these growth numbers.

The main source of GDP growth in the third quarter was private final consumption expenditure (PFCE), which had witnessed remarkable increase. As a share of GDP, PFCE increased from 53.7% during second quarter to 58.7% in the third. What makes the PFCE in the latter quarter particularly noteworthy is that it recorded its highest share since the third quarter of 2013-14. In other words, the spurt in PFCE reported by the CSO is of a magnitude that has not been seen in the past 12 quarters.

The question that therefore arises is the following: how did PFCE register this magnitude of increase when the government had severely dented consumer demand by sucking-out 86% of currency notes in circulation from an economy, in which, according to some estimates, well over 90% of consumer spending is cash driven?

In the period since 8 November 2016, consumer spending should have been drastically hit also because Reserve Bank of India (RBI) was unable to remonetise the economy at a pace that the exceptional circumstances demanded. RBI had reported that on October 28 2016, i.e., 10 days before demonetisation, Rs. 17 lakh crore worth of currency notes were in circulation. Demonetization seems to have “shocked” RBI as well, for three weeks following the withdrawal of high denomination currency notes, the institution reported that “Currency with the Public” was Rs. 15.3 lakh crore, when the actual figure should have been well below Rs. 2.5 lakh crore (equivalent to 14% of the pre-November 8 currency in circulation). By end-December 2016, currency in circulation was Rs. 7.8 lakh crore, which was about 46% of the level prior to demonetisation. The latest figure provided by RBI (for 17 February 2017) shows that currency in circulation was nearly 60% of the pre-demonetisation level. We can now understand why Economic Survey 2016-17 had argued that “remonetizing the economy expeditiously by supplying as much cash as necessary” is an essential step to put the economy on track.

A disquieting dimension thrown up by the GDP numbers is the steep fall in the rate of domestic investment. Gross domestic fixed capital formation fell below 27%, the lowest level in more than a decade. The GDP estimates have, therefore, put before the government two daunting challenges, namely, reviving consumer sentiments, and also to get domestic investors to increase their stakes in the economy.

As the debate on the GDP growth rate rages, it is necessary to ask whether this economic indicator should receive the kind of importance it has been receiving in public discourse. Mainstream economics have, for a long time, questioned the relevance of economic growth as an indicator of economic well-being of a nation. The “trickle-down theory”, once bandied about as the primary benefit of high economic growth has long been rejected on the sheer weight of evidence against it.

Two decades back, the UN Human Development Report (HDR) had advised the policy makers to avoid getting “mesmerized by the quantity of growth” and to instead “be more concerned with its structure and quality”. The report had stated that “unless governments take timely corrective action, economic growth can become lopsided and flawed”. Under such circumstances, only determined efforts can help in preventing growth from becoming “jobless, ruthless, voiceless, rootless and futureless”. HDR’s observations could not have been more pertinent – during past decades, large swathes of the developing world have witnessed these undesirable forms of “growth” that have perpetuated human miseries.

However, despite these warnings, governments, including those in India, have remained obsessed with growth numbers and have, as a result, glossed over the factors responsible for the unacceptably high levels of deprivation suffered by large sections of their citizens. The citizens of this country would have greatly benefitted if the obsession of those responsible for shaping public policy was on ways to address the scourge of poverty, malnutrition, the growing burden of diseases and to find ways in which those in the working age can get decent work. But, this is unlikely to happen if the dominant discourse on the state of the economy remains a prisoner of a set of numbers that are bereft of the human face.

Biswajit Dhar is a Professor of Economics at the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi. K.S. Chalapati Rao is a Distinguished Fellow at the Institute for Studies in Industrial Development, New Delhi.

— source madhyam.org.in

How to Remove a President

On Sunday, ousted South Korean leader Park Geun-hye left the Blue House presidential compound and returned to her private residence in southern Seoul two days after South Korea’s Constitutional Court unanimously ruled to remove her from office over charges of graft and corruption. The unanimous ruling strips Park of immunity from prosecution, clearing the way for her to face criminal charges. Park’s power had been sharply reduced since December, when South Korea’s parliament voted overwhelmingly to impeach her.

A new election will be held in 60 days. The upheaval in South Korea comes days after North Korea test-fired several ballistic missiles and as the Trump administration is deploying a missile defense system to South Korea. Meanwhile, hundreds of thousands of South Korea and U.S. troops, backed by warships and warplanes, are currently engaging in a massive military exercise. Last week, Chinese Foreign Minister Wang Yi warned that the U.S. and North Korea are, quote, “like two accelerating trains coming toward each other.” He called on both sides to de-escalate tensions. Meanwhile, U.S. Secretary of State Rex Tillerson is heading for his first trip to Asia later this week, stopping in Japan, South Korea and China. In a break with precedent, Tillerson is not traveling with members of the press.

Christine Ahn talking:

I would say it’s a really incredible outcome of months of organizing by mass movements to unseat this president that was obviously charged for political corruption but whose policies have really steered South Korea into a very dangerous situation that we are in today. And I think it’s extraordinary what people in mass movements can do, and I think it’s not just great for South Korea and for peace on the Korean Peninsula, but I think it’s a really great symbol for the rest of the world.

she was first moved by parliamentary vote to impeach her, and then, just recently, the Constitutional Court affirmed that decision. But it really took, you know, months of massive—millions of people taking to the streets, holding candlelight vigils, demanding her ouster, demanding that she be impeached.

And I think it’s a great day for social justice and democracy in South Korea. Her policies have been really bad for workers’ rights, for labor unions, for farmers, and it’s endangered Korea. And it’s worsened inter-Korean relations to the worst point, that just last year, you know, the Kaesong industrial complex, which was the economic zone that was established during the Sunshine Policy era, was—you know, between North and South Korea. It was within the Demilitarized Zone. And that was one step towards reconciliation, towards reunification. And she basically did away with that, you know? And that had a lot to do with her confidant, Choi Soon-sil, who was unlawfully giving her advice and was also tied to her corruption.

But I think it’s a new day for the Korean Peninsula. I hope that the U.S. doesn’t take military action in this very dangerous hour, where there is a tremendous possibility for miscalculation. There is that political vacuum in South Korea, until, likely, Moon Jae-in, who is the leading contender for president, who was the chief of staff during Roh Moo-hyun, the last liberal government that was, you know, carrying out the Sunshine Policy. And he has said he would reopen Kaesong. He has said, “We must return to talks with North Korea. We must acknowledge that Kim Jong-un is the leader of North Korea.” And so, hopefully, the U.S. won’t do anything dangerous in the interim.

Bruce Cumings talking:

Park Geun-hye was, of course the daughter of President Park Chung-hee, who was assassinated by his own intelligence chief in 1979, precipitating a crisis that led to another military coup. At this point, Park Geun-hye had been living in the Blue House, I think, for 10 or 11 years. She went into a kind of seclusion for a long time and then came out in the 1990s as a member of the National Assembly. She was elected, really, in reaction against Kim Dae-jung and Roh Moo-hyun, two progressive presidents who were in office from 1998 to 2008. And her constituency, as you can see from the protests in Seoul in favor of her, really consists of people who are still deeply anti-communist, anti-North Korean. They hate the North Koreans. They tend to be in their sixties, seventies, eighties. It’s obviously, therefore, a declining constituency. And she really, basically, lost her popular base in light of the corruption case that Christine was just talking about, which raised all kinds of historical memories for Koreans, because, in the past, kings and queens had relied on shamans and others to do their business, and this seemed to be a harking back to that. So she is one of the most unpopular presidents in Korean history, and now she’s gone.

the U.S. holds these exercises every year, because South Korea, under Park’s leadership, is a welcoming country for these war games involving, as you said, hundreds of thousands of troops. There aren’t many other countries in the world who are willing to do that. And the North, predictably, responds every time with missile tests or bomb, atomic bomb, blasts.

In this case—and I want to emphasize that the North Koreans pay acute attention to what’s going on in Washington, and they try to do something that symbolizes what they want from the U.S. or to try and get attention. They did that when Prime Minister Abe was having dinner with President Trump at Mar-a-Lago a few weeks ago. And they basically presented a missile right in the middle of the dinner. They tested a missile. Trump pulled out his 1990s flip phone to discuss it.

But what wasn’t pointed out in our media is that Abe is the grandson of Kishi Nobusuke, who was a war criminal, a Class A war criminal in World War II, according to the U.S. occupation, and had been one of the people fighting against Kim Il-sung in Manchuria in the 1930s. He was responsible for munitions production. So you have Abe, who reveres his grandfather, and Kim Jong-un, who likewise reveres his grandfather, Kim Il-sung. And, basically, 70 or 80 years of history is represented by that particular missile test. But Americans think that’s a bunch of irrelevant minutiae. They don’t realize that Japan and North Korea have terrible relations, no diplomatic relations.

And basically, the North Koreans, at that dinner, wanted to present Trump with a message. The recent tests of four simultaneous missiles, of course, is a direct response to the hurried deployment of the THAAD antimissile system. They’re just rolling it out right now so they can do it before a progressive president takes over in South Korea. By doing that, the North Koreans reveal that they have capabilities that were undetected before.

Christine Ahn
founder and international coordinator of Women Cross DMZ, a global movement of women mobilizing for peace in Korea. Her recent article for Foreign Policy in Focus is titled “Korean Women Take On Trump”

Bruce Cumings
professor of history at the University of Chicago. He is the author of several books on Korea, including Korea’s Place in the Sun: A Modern History and North Korea: Another Country.

— source democracynow.org