Sree Iyer: Namaskar, hello and welcome to PGurus Channel. I’m your host Sree Iyer. Today is the 89th Episode of Daily Global Insights and it is January, I’m sorry. It is February the 2nd. I apologize. I have with me as always Sridhar Chityalaji the in-house expert on various topics. We have a lot of things to cover today. We are going to hit the ground running. Sridharji, namaskar and welcome to DGI.
Sridhar Chityala: Namaskar and good morning, sir.
Sree Iyer: So, let’s take a quick look at the Indian budget. We just looked at the big picture team yesterday. We’re going to drill into little bit more details for the first and that and then, we can go in to talk about the United States the stimulus package the two versions of the stimulus package as well as the Chinese incursions which we will be doing separately as a detailed program. But, today we’ll just give people a taste of what is to come. Sir, take it away. Let’s start with the Indian budget.
Sridhar Chityala: Well, I think that we were able to quickly recap at a high-level yesterday. There’s a lot of discussions still going on but, the overall impression from everybody is this is probably one of the best budgets because spanning the number of segments. We need to look at it into context one is the Strategic transformation piece is 1 and second is the operational management of the revenue and expenses, which is obviously the second part of it is around receipts and expenses per side. It’s always there’s a lot of kind of adverse complaints that come from the same taxpayer is being asked to pay more tax or no tax or less tax or whatever it is why there are no concessions for that. Remember, we made the point which is there’s no increase in taxes. No Cess tax, no Wealth Tax, no Capital Gains kind of tax. So, we had kind of set the high level but probably people expected some flow-on effect from that. It’s very interesting that the Chief Economic Advisor in one of the interviews made a comment which is raising taxes is the US Issue, cutting taxes is or keeping it or raising taxes is not an Indian issue, you know, we can kind of agree or disagree on that but, that’s a different topic.
But, this budget if you have to highlight is around innovation and strategic transformation of the Indian market in one context. The second main theme is around the capital formation. The capital formation historically has been limited borrowing by India from domestic predominantly through the issuance of bonds and tax bonds and that kind of stuff. But, now they are going into Equity dilution. So, we are beginning to see at least four to five two large public sector Banks BPCL, IDBI, LIC and they also looking at a couple of other Industries. So, disinvestment program they have set up a modest budget, but you’re beginning to see that there is a divestment taking place. Now, how does the divestment helps? The divestment helps as India runs two accounts, one is I think the capital account which is you have receipts and disbursements and then you have the revenue account which has got receipts and disbursements. So, this is about when you are doing a large expansion program, then you see what the source of funds is. So, recapitalisation of the balance sheet, the formation of the infrastructure bank, then, expansion of the defence programs potentially laying the framework for the MSME segment. So, some of the work in the last few months, I think they were the last pieces of the coal mines they were divested boosting up the coffers of the capital expenditure side of the government. So, I think the markets are giving thumbs up because it’s becoming less government and more governance. I know there is, I’m not close but there’s always some kind of sarcastic comments that flow on from lots of people who kind of in India because of the all the underlying kind of challenges, but when you set aside that for a person who is outside looking in when you look at the macro-level kind of reforms in the data, I think India is on the right path in terms of managing both sides, which is the capital account as well as on the revenue expenditure side, of course, health care and defence naturally receives the biggest kind of the boost. I think 17% in the defence sector and some 134% or some big number increase because of the pandemic situation that you would see in most of the budgets. India is no exception. It’s around the whole program of revitalizing the health of the people away from the pandemic. So that’s why the markets are giving a thumbs-up. Markets are not giving thumbs up because somebody did not meet their revenue gap. Even when you take we have done this in the United States, it is the fiscal balance sheet is purely a measure of understanding where the capital is getting allocated and what the implications are to the GDP, we will cover these separately in a topic but, overall transformation, innovation, the focus all get, big ticks on the Indian budget side.
Sree Iyer: To complement to what Sridharji was saying India as two types of account the current account and capital account. The current account is fully convertible and the capital account is not and for the capital account, it is my understanding that India uses some sort of a basket of currencies against which it pegs India’s rupee, and this has been a bone of contention because many people feel that rupees undervalued and the government refuses to accept that, so, there are some philosophical differences again something that we’ll discuss it in a later date. There is much more details, much more currencies and foreign exchange and things like that, which is also pegged to the exports and India needs to become a net exporter, which it is not at this point of time. Let us hope that the vaccine industry the Pharma industry will make India the net exporter that is just my hope.
Sir, let us go on to the United States now, there are two stimulus bills making the rounds one that the GOP wants to put out and one that the Democrats are trying to put out and I think there are moves on part of the Democrats to try and proceed on their own even without the support of the Republican. We knew that the vice president Kamala Devi Harris as the casting vote in the Senate to get them a simple majority, but, I did not expect them to use this Astra so soon.
Sridhar Chityala: Well, I think the progressive agenda of the Democrats is wide, open, explicit and the whole election campaign, especially the Georgia State runoff for the Senate was focused on getting the majority and breaking the filibuster and casting this vice presidential vote so to get the agenda going. Now, why they want this? Because they have made your promise to their constituents or constituencies, which is to say the progressive agenda is about to add to the corona relief, it truly not Corona stimulus relief. We want to get into Paris Accord. We want to get in Green taxes. We want to get in the normalization of all illegal or finding a pathway for all these illegal aliens who are in the United States.
Expanding the Medicaid Program, expanding the access and reach to all these people who are coming in, extending the unemployment allowance and dealing with these 9 million people who are below the poverty line to be a special kind of a special vehicle or a special purpose all this seems to be incorporated into the stimulus budget, which is actually fiscally, totally irresponsible, but that’s the path, they’re hell-bent on moving. And also, one of the things that I kind of critiqued some of these US aid programs is also focusing on supporting and promoting and organizing the abortions which were kind of very adversely, responded in United States Community. But, any way to achieve all of this they are to have a gigantic bill. What the Republicans have pointed out is only 670 billion dollars is enough. It addresses four important themes that are truly needed to get the economy back on track. We’ll do a separate session and they are basically giving direct payments to only eligible people not to everybody who doesn’t need it. The second is extending the PPP program, so, that further access is available to the small business, but, also unavailing that 350 or 400 billion dollars which Steve Mnuchin has parked in the treasury, which was unspent money in 2020. Also, the unemployment insurance to be extended to 11 weeks from 8 weeks. And then the rental and mortgage kind of moratorium. And then finally the what you call, health Healthcare Enhancement extension to the small businesses. So, those are very valid programs and adding a little bit of money to further, you know, depending on the vaccine issue to the vaccine programs anything that you are adding you will find as no economic multiplier has is basically a social welfare pride program, which is tagged to stimulus budget.
You want to do a separate bill and say I want to add five trillion dollars let the United States people know that they are going to be a further burden because they want to have another 25 million but, don’t add to to the stimulus, keep it separate. Why you have this discretionary kind of a model? So, I think that’s the philosophical difference between the two sides of the fence.
Sree Iyer: A couple of things viewers, some of you have complained that you are unable to read the new sticker font. The preferred method of watching is this mode called as landscape mode don’t watch it like this. It will not be able to render the fonts in the proper size, please watch it in what is called as landscape mode. Again, viewers, we have a plan to come back to you on a detailed assessment of what gives the biggest bang for the buck from the stimulus programs and that will be a data-driven session as always Sridharji will be leading that effort. It is going to be happening either tomorrow or the day after, in the next couple of days because we are going to drill down to the details. Data is a primary driver, Data is the truth. That is what is going to set us free. That is what is going to make sure that no pork spending, specific segment appeasement will not be tolerated, will not be able to stop it, but at least we’ll be able to shine a spotlight on that to know that the American people are being taken for a ride. They are a very very patient, very forgiving lot. They will take any amount of abuse from their leaders. But that’s a matter for a different day.
Let’s move on to Global News. What I’d like to do first is to set the stage for a simple drawing on where China is now performing all these incursions. What we have identified are eight different incursions that are happening at this point in time. I would urge viewers to take a look at the Sunburst chart that is on the screen now and you can see that India is facing incursions at three different places from China. One is along the Indo-Pak border. The other is in the Line of Actual Control in Ladakh. We also know, in Ladakh there are two places where skirmishes have already taken place one is in Galvan and the other is near Pangong Tso very India has got a strategic height, but India has lost some area one more time. No matter how much the country sugarcoats it India is steadily losing territory to China and strangely the Indian government doesn’t even want to take the name of China. They just keep saying that there is a land incursion. Again, that is a matter of debate for a different day. Now if you look at the other places, with Thailand there is a dispute about Mekong River and with Philippines Spratly Islands, with Indonesia, the South China Sea, with Japan East China Sea, with Taiwan Pratas Island. So you can see that this octopus because there are eight different places that we have highlighted and it is just spreading and we will be using this chart to try and hone in on more details on where all these things are happening. But to add more about this Sridharji you have, in fact, a detailed diagram showing what are all the different ways in which China incurred into these sections including their route maps, isn’t it?
Sridhar Chityala: It is, it is. I think that we would probably cover this as you rightly said in a much more elaborate session. The basic theme here is, you have effectively four major passages. One is roadways; incursion on the roads. For example, China passing through Tibet all the way to Leh into Pakistan Occupied Kashmir via Gilgit going all the way into Karachi, the digital as well as the belt road, that is the land incursion. Then, an incursion into Arunachal is a land incursion.
Similarly, if you go into ocean incursion, which is the South China Sea. If you want to have a rail incursion, it is the new railroad link that they are building all the way going from Pakistan to Iran to Turkey into Europe which will be connecting into that the Pakistan leg of the Belt Roadway, so you have the railroading. Then you have the river incursion, the river incursion is happening around the Mekong River on one side and then, of course, you have the upper Himalayan water system, where they are trying to build dams and mitigate the issues and mitigate the problem. Sorry, aggravate the problems for India in terms of the water tables and water Systems in the upper Himalayan region. So, we will present this in detail because of the time issues, but there are 2 important matters that I want to leave on before we wrap up on China.
One is there is now a very very open and bickering, there was yesterday February 1st evening, there was a presentation in the US-China Business Council where people have raised the issue from the Chinese side, and said, it’s time that the Strategic mismanagement of China is a reset by the United States. Also, it’s time the US follows the rules of CCP. I’ve tweeted about this, this is a very broad and provocative posture that has been taken. So they say don’t come and advise us on Hong Kong, Xinjiang or Uygur or Tibet. Don’t come and advise. So somebody has to come up and say ‘get off the backs of the South China Sea, get off the backs of the Indian Ocean.’ Now that today, the latest as we get into this session, I heard now, they have their kind of ratcheting up this agreement with the Maldives on the Indian Ocean. The Maldives is 1.3 million people, but they’re now saying they have an FTA agreement which is signed in 2019. So, therefore, we are going to extend ourselves into the Indian Ocean. So this is what Jake Sullivan said that we have to rebut with a narrative. We don’t have one as yet.
Sree Iyer: Let’s take a quick look at the other things that are happening and the most important thing that Secretary of State said was that Iran is weeks away from becoming an atomic power. So this is now an admission coming on the heels of what is really said, I think last week or the week ago when we touched upon it. So things are heating up in Iran also, so we have to see how that plays out. Viewers, we are coming to the end of our session today. Sir, you want to take a quick look at the markets, where crude is headed and then we can call it a wrap?
Sridhar Chityala: Yes. I think the markets were buoyant yesterday on the back of no bad news. No news is good news, right? So the markets were back up at around 220 points and the strategic rationale that markets advocating was that it’s a repositioning. That was happening because of a high imbalance created by certain specific trades in the market which created the volatility and there generally you have the animal spirits mindset. So you saw the markets gyrate. As far as crude is concerned, it is very reflective that you will begin to see the true tick as the Biden effect comes into play. The Biden effect is that the new leases have been stopped, Keystone Pipeline has been stopped, and for what his further in-store, we don’t know. You would have seen since we started to track, the number slowly has picked up from almost $38 $39, today the crude is at $54.
Sree Iyer: Thank you very much, sir. And that brings us to an end of today’s episode. Please do subscribe to our channel. You can see the Subscribe that shows up at the bottom right of your screen all through these videos and anytime you can subscribe to our Channel and we would welcome your inputs. Fill free to put in some comments if you feel like there is something that we should be looking at in more detail. And as always we’ll keep trying to make our presentations as professional as crisp as possible and we cannot do this thing without your support. Please feel free to donate to our cause and also viewers, we are going to have a membership where we will be bringing you a more in-depth content that will be only available for members. We are going to share the details with you very shortly in the next couple days and it’s a very very nominal membership. It’s very very easy on your purse. Don’t worry about it. But we do need that because we are incurring a lot of expenditure in terms of trying to keep up with the increasing demands of various platforms and what we need to do. As of now, we are live on Twitter, Facebook, and YouTube. If you’re watching this on Twitter, do like and retweet it. If you are watching it on Facebook also do like and follow us and on YouTube, please do subscribe and please consider donating to our cause. You can see the screens that will come up at the end. It’s very very simple. It is Paypal.me/PGurus. That is the link that you need to use to donate to our cause. Once again, thanks for watching and we’ll be back again tomorrow same time, same place. Namaskar.
Sridhar Chityala: Namaskar and have a wonderful day.
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