India’s Superrich Irreconcilable Ironies
Indian share foreign institutional investors who have been heavy net allocators joined domestic counterparts as chronic sellers in blasting the next fiscal year budget outline, where Finance Minister Chidabaram proposed a 20 percent surcharge on high-income taxpayers to fund a 15 percent social spending increase within the 5 percent of GDP deficit target. Economic growth for the latest quarter at 4.5 percent was the slowest in a decade, although modest improvement in food inflation allowed the central bank to tweak the benchmark interest rate 25 basis points. The trade gap hit a record $20 billion in January as the current account shortfall is stuck at 4-5 percent of output. After missing this year’s goal privatization proceeds will again be limited as recapitalization of state banks proceeds to meet Basle standards. Guidelines have been finalized for new licenses likely to go to arms of family-run conglomerates, as foreign banks like Barclays and RBS pare networks under continued constraints. Private Axis Bank prepared a $1 billion offering which may now be available on a third stock exchange, MCX-SX, which will trade a comprehensive product range, including derivatives. On the fixed-income side interest rate swaps have been popular with a gross notional value outstanding of almost $700 billion, drawing official reservations about the innovation in the aftermath of a ban on offshore “participatory notes.” In the February budget non-resident taxation which can apply retroactively as in the Vodafone case was left an open question, stifling a rebound the first two months on the Mauritius bourse.
Politics overshadowed the exercise with the approach of 2014 elections as the Congress party finally tapped Rahul Gandhi as his mother’s successor to lead its campaign. He has been a lackluster speaker and his effort was squashed recently in Gujarat state with a resounding victory for the opposition BJP. His rhetoric has sharpened with calls for “revolution” through decentralization and transparency which can appeal to middle-class voters who have participated in anti-corruption street protests. In poorer areas the platform stresses more “inclusive” growth and citizen protection. Andhra Pradesh in the south is a battleground, where the micro-finance sector has been reformed after farmer suicides under harsh collection methods. A lending rate cap was imposed which keeps the current rate at 25 percent versus the 40-percent plus level two years ago. With the transition doubts money continues to pour into gold which represents a large import chunk and has maintained value in rupee terms as compared with constant exchange rate fluctuations.
Pakistan is also struggling under the weight of leadership instability after another round of terrorist attacks and daily violence heightened rumors of a military takeover prior to upcoming elections. The Supreme Court which continues to spar with the president ordered the prime minister’s arrest on corruption charges. Power shortages are more acute as the rundown of international reserves prompts pleas for IMF program renewal despite lack of tax collection progress especially on wealthy landowners.
