From the Desk of Chairman (October 2023)

The recently released RBI data shows the household savings plummeting to the lowest level in fifty years triggering alarm bells. Indian households saw their financial assets which include bank savings, cash and investments shrink to 5.1% of the country’s GDP in fiscal 2023 down from 7.20% in the previous fiscal. The amount of money households owe relative to their income increased by 5.8% in the previous fiscal year. This increase in debt is particularly alarming. The State Bank of India is of the opinion that low interest rates may have prompted a shift from financial savings to physical savings like investments in real estate. SBI’s conclusion is based on increases in housing loans and increases in property prices as evidence. A shift in financial savings to physical savings might have occurred in recent years due to a low interest rate environment. The figures in the RBI data on household assets and liabilities also indicate that it is the public spending from the revenue earned by taxes that is holding up the GDP growth rate and not private consumption and private capital expenditure. The consumption growth appears to be unsustainable. This decline could be because of people who have less money on hand to spend either because of unemployment or the prevailing inflation. Pranab Mukherjee when he was the President said once “There is a need to create awareness among the people to bring their savings into the national banking system in order to get better returns and for social security in their old days.” His advice came at a time when the government needed money in banks to deal with post-2008 global slowdown. India has always been a shortage economy and that had motivated its citizens, particularly the middle class to extoll the virtues of savings. As the saying goes money saved today is the wealth created for tomorrow. Indians, used only to rainy days, with endemic poverty and economic miseries have been accustomed to pay heed to this advice from generation to generation. For them profligacy is sin. Savings create a pool through monies put in the banks. This is low-cost fund ready for investment. A growing economy like India needs more investments to sustain high growth rates or come out of periodical slowdowns. India’s budgeting priorities have also changed with more revenues being allocated to repaying debts and interests than previous years. This makes less money available in the pockets of citizens. When elections are around the corner, poor savings are surely a dampener to the political elite. In the end, you must remember that there is no free lunch even for the poor. What is more, the poor pays a bigger proportion of their money saved on that precious lunch.

The Bombay High Court gave an important judgment that needs special mention. The High Court in an appeal  on the Senior Citizens’ Maintenance Tribunal (SCMT) confirmed the revocation of two Gift Deeds executed by a woman in her son’s name for failing to care for her and directed him and his wife to vacate the property. Justice Sandeep V Marne also said that denial of access to one’s own house amounted to ‘denial of basic amenities. The son had failed to perform his duties to provide basic amenities to his aged mother. The mother executed two gift deeds to transfer her rights in two properties to her son. Soon afterwards problems cropped up in the family necessitating the mother to seek revocation of her Gift Deeds besides a claim for monthly maintenance from her son. Partly allowing the plea, SCMT declared the two Gift Deeds as null and void and ordered the son to permit access to the mother at their Juhu bungalow, to refrain from causing any mental or physical agony to her, and even permitted the mother to file a police complaint if required. The son challenged this Order in the High Court. The High Court upheld the Order of SCMT. The Justice in his Order also observed that the son and his wife are not concerned about the access granted to the aged mother to their home but are ‘aggrieved’ by the cancellation of the two gift deeds of May 2017. Dismissing the petition filed by the son and he daughter in law , the Court also said that the mother executed the gift deeds out of natural love and affection towards her son. Given the sequence of events love and affection had ceased to exist and her son also failed to provide for his mother’s needs. As “it was never the son’s property… he had no right to seek gift thereof.”  This decision sets a precedent when it comes to the validity and revocability of Gift Deeds in India. Those planning to use Gift Deeds as an instrument of transfer should acquaint themselves with its intricacies.

The government introduced a new Bill in the Rajya Sabha recently titled “The Chief Election Commissioner and Other Election Commissioners (Appointment, Conditions of Service and Term of Office) Bill, 2023”. It has sparked a heated debate in the Press primarily because it has sought to remove the name of the Chief Justice of the Supreme Court in the election panel besides some other issues. The government’s move was consequent to a ruling by the Supreme Court that the government should pass necessary legislation to make the Election Commission truly independent and autonomous. Ever since late T N Seshan had occupied the chair as the Chief Election Commissioner, the political establishment and the social activists had come to realise how important and powerful this post really is. The apex court’s intention was to insulate the appointment of Election Commissioner from the government’s interference. The decision to include the CJI in the body is fundamentally flawed in that if the CJI is a member of the EC how do you approach the courts to challenge any decision taken by this august body? Whatever be the motive for removing the name of the CJI from the proposed body the decision to keep the CJI from such executive responsibilities is the right one. The current debate underscores the interplay between democratic and political manoeuvring. The outcome of the debate will determine the broad counters of the proposed Election Commission – whether they will be able to remain as an unbiased body or would it play into the hands of the party in power. Safeguard democracy and uphold the integrity of the elections it is necessary to make the Election Commission truly independent both in letter and spirit. More importantly there should be no perception that the political executive would control the EC.

The Chinese economy, touted to be the second largest in the world appears to be in turmoil. Commenting on the Chinese economy while it is operating from behind an iron curtain is like the USSR of yore and is fraught with danger. The current state of  the Chinese economy is dire if the news emanating from across our borders, are any indication. The latest news is that the property prices in China appears to have bottomed out. The property sector accounts for 25% of the Chinese economy. China’s worsening economic situation and the impact it has had on the country’s market sentiments have created an environment of fear globally, significantly reducing the scope for foreign investments. The tell-tale symptoms are visible when major companies for whom China is the sole source for manufacturing support have started looking for other countries like India, Vietnam and Thailand. According to a report in India Today “While China is still the world’s manufacturing hub, its aging industries and workforce put it at a disadvantage against India, whose government is rolling out the red carpet for major global brands. In addition, India also has a much younger workforce and has established itself as the fastest-growing country in the world.”  The Wall Street Journal notes that China is entering a prolonged phase of growth slowdown that could go on for years if not for decades. Most of the economists quoted in the report feel that this time the slowdown is not just a period of economic weakness and can break the Chinese economy. Part of the risk that China faces is related to its astronomical rise in debt. China’s total Debt-to-GDP ratio stood at a record 279 per cent in the first quarter of 2023, according to a Bloomberg analysis. In addition, data from the Bank for International Settlements suggests that China’s total debt, held at various levels of the government and state-owned companies, climbed to three hundred per cent of the country’s GDP as of 2022.

Here is an important piece of information for those who track the Indian investment landscape. India’s local Bonds will be included in the Government Bond Index-Emerging Markets (GBI-EM) index and the index suite, that is benchmarked by about $236 billion, in global funds.  The inclusion of Indian bonds will start on 28th June 2024, and extend over 10 months with 1% increment on its index weighting, as India is expected to reach the maximum weighting of 10%, according to JPMorgan. JPMorgan said 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion are eligible for inclusion in the basket. All fall under the category of “fully accessible” for non-residents. Experts hailed this decision of the inclusion of Indian bonds into the GBI-EM index and said Bond investors will have more options now for investments. It will also pave the way for the Bond market to grow its roots in India. Moreover, it is also positive news for the domestic currency as it will lower India’s cost of funding and help India finance its fiscal and current account deficits eventually lowering India’s risk premia and enhance the liquidity and ownership base of government securities.

When  the US sneezes, the rest of the world catches cold. Such is the power of the US economy. When Jerome Powell, Chair of the US Federal Reserve unleashed an aggressive monetary tightening of the economy every economist worth his salt had categorically predicted that US would land in the midst of a recession at the end of it all – a hard landing. As things stand, the naysayers have now to swallow the humble pie. Powell had this to say about the resilience of the US economy. “I’ve always thought that the soft landing was a plausible outcome… ultimately, this may be decided by factors that are outside our control at the end of the day, but I do think it’s possible.”   “The autoworker strike, a possible government shutdown, the resumption of student loan repayments, higher energy prices, and higher long-term borrowing costs are among risks that Powell noted could affect the trajectory of the economy, inflation and, ultimately where the policy makers decide they need to take rates,” according to a Reuters report. The US economy appears to have been able to achieve a soft landing after all. Economists are now trying to figure out how the US Fed could do this. The economists, kind of, concluded that what had happened to the US economy was not conventional inflation per se. They prefer to call to it a “greedflation.” Prices surged not because of economic forces but because of the greed on the part of those who could influence the prices by whatever means. The economists posit that it was as a result of the price setting behaviour of the suppliers of goods and services. In other words, it was a price shock. Greedflation that gets actualised is in that sense was a temporary one and amounts to a transient price shock. The very fact that the Biden administration was hectoring Saudi Arabia and the domestic fracking industry to increase output of oil is testimony to this fact. Greedflation refers to price inflation caused by corporate greed for higher profits. Proponents of the greedflation theory of inflation see this as a sign of increased market dominance by corporations and have called for efforts to rein in the market power of large corporations and some have even advocated for a ban on such price hikes to prevent “profiteering.” There is a growing consensus across the world that corporate greed is the new villain in town for the spike in inflation. It is a double whammy for workers who get doubly penalised by lower wages on the one hand and increases and higher interest rates on the other. In an open market, for greedflation to work continually, the supplier/s should become greedier and greedier on a sustained basis for a period of time in order for it to result in higher and higher prices. That is a bit of a stretch in this instance.

India lost one of its illustrious sons recently – Monkombu Sambasivan Swaminathan. He died on 28th September 23 at the age of 98. Swaminathan was a geneticist and an international administrator, renowned for his leading role in India’s “Green Revolution,” a programme under which high-yield varieties of wheat and rice seedlings were planted in the fields of poor farmers that produced outstanding results both for the farmers and the country itself. Swaminathan was educated in India and at the University of Cambridge as a geneticist.  While working in the Indian Civil Service he helped introduce Mexican semidwarf wheat plants to Indian fields and helped to bring about greater acceptance of modern farming methods. Swaminathan’s pioneering efforts involved the development and introduction of high-yielding varieties of wheat and rice, which significantly increased food grain production across India. His groundbreaking work in agriculture transformed the lives of millions and ensured food security for our nation.  He was named one of the 20 most influential Asians of the 20th century by the Time magazine. That was a reflection on the work done by him. Mr. Swaminathan you have done yourself proud even as you made us all feel secure about our next meal. May your soul rest in eternal peace in the knowledge that a grateful nation is rising as one to say thank you for what you have done for us during your lifetime. Just recently I saw a video circulated by a friend of mine of a speech by Mr. Swaminathan which concludes with these memorable words. “The future belongs nations with grains and not guns; guns you can purchase but grains you cannot purchase.” Well said Mr. Swaminathan. India will miss you dearly.



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