Gini Coefficient

I am not going to explain what exactly is the Gini Coefficient or how it is computed for a country or society.

Suffice it to state that the Gini Coefficient is a good measure of income inequality – how wealth is distributed in a country. A perfectly income-equal country (where everyone earn the same amount of income) has a Gini Coefficient of 0, and a completely unequal wealth distribution leads to a Gini Coefficient of 1 (wherein one person has all the income, and the rest have none at all).

There is, of course, no country in the world with a Gini Coefficient of 0 or 1. The dispersion lies somewhere between these two figures, but the best “equal income” countries have a Gini Coefficient below 0.5. It is not practical to expect a figure better than that (like a 0.2 or 0.3) in a largely capitalistic world that we live in. Examples of such countries include South Korea, Canada, and many Western European countires. The Gini Coefficient has been deteriorating over the decades, as concentration of wealth in the hands of few people increases, as we have seen in many countries.

Governments are severely handicapped when it comes to tackling income inequality in their respective countries. Economic and taxation policies do not curtail the increase in the concentration of wealth. Many governments allow fixed capital formation in their countries with little tax impact, in order to attract investments and wealthy folks to their countries. As societies become prosperous in developed nations (in Asia that would include Hong Kong, South Korea, Singapore), the desire for further wealth accumulation increases in an unfettered manner based on past successes. Real estate prices go up in an uncontrolled manner, leading to a societal segmentation which segregates society into multiple fragments, and engender a more unequal income to be the cause of undesirable thinking in the disadvantaged populace. An “entry” price is eventually established for each such segment of the society, and the wealthier sections of the society become distanced from the so-called proletariat, even in advanced countries. This kind of “pricing” manifests itself in multiple ways – more BMWs, Jaguars, Bentleys, Ferraris, Lamborghinis on the roads is a good example; the other example is the inherent price fixation in real estate for exclusive high-end zones which precludes consideration by even the “above-average” dual-income couples who aspire to move into a better accommodation in such zones. General cost of living increases, and economic fundamentals adjust to serve the needs of the well-heeled. Gradually, the segmentation sets in firmly, and several enclaves form to cater to the respective segments, leading to even more dispersion.

While many of us have heard about the Gini Coefficient not so frequently, it is a commonly used economic term which concerns global multilateral economic and financial institutions. The global concern about unequal wealth distribution and concentration of wealth in the hands of few oligarchs is well placed and requires urgent tackling. Socially progressive governments in countries such as Switzerland are actively and very seriously considering various policy actions in this regard.

The problem with the fast developing countries such as China and India is more acute as the embedded inefficiencies in these countries allow for faster wealth accumulation in fewer individuals due to nepotism and favouritism, and other factors. Wealth created by family-run conglomerates far exceeds that by public sector corporations (or largely state-owned enterprises, which are publicly listed in the bourses). While it is commendable that the private sector wealth creation and capital formation is driving the business in India, it is also responsible for increased income inequality in a country with 1.25B people.

There are no easy answers for solving this rather intractable problem, I will let you think about potential solutions. In the meanwhile, I am returning to my usual weekend glass or red wine, while thinking about the solutions. What can we all do to reduce such inequality? Such thinking is even more important and relevant in wealthier countries such as Singapore, wherein the folks who earn far below the per capita income are very disadvantaged to sustain themselves in a fast-moving, economically-driven society.

Have a good weekend folks, and please think.


Vijay Srinivasan

10th February 2018


Language Emotions and Economic Loss

I came across a LinkedIn post and discussion thread today about Tamil vs Hindi (for people who do not know, both are Indian languages).

The original post was by a Chennai-based IT recruiter who complained that North Indians assume that he speaks Hindi when he calls them up, instead of responding to his English queries in English. He even goes on to mention that he teases the potential candidates by occasionally speaking in Tamil!

There were more than 10,000 comments by the time I came across this post, and thousands of “Like” (LinkedIn should also provide an easy button for “Dislike”).

Haven’t we heard this kind of topic before? Of course, we have, especially in Tamil Nadu.

Tamil Nadu and Tamilians apparently have not yet got the 1960’s imbroglio with the Central (Federal) Government on the then hot topic of imposition of Hindi on all States of India, against the Constitution of India and the regional peoples’ will, out of their heads even after 50 years. They are very emotional whenever the topic comes up.

Hindi is sparsely spoken in Tamil Nadu even today, though there are many Tamilians in Tamil Nadu who can speak Hindi rather well. It is not an accepted form of communication, however. Tamilians prefer English, even to talk to other Tamilians. Such is the impact of those old days when Tamil Nadu erupted in violence against Hindi. That misstep also led to the successful emergence of the Dravidian Political Parties of Tamil Nadu, which have been feuding even amongst themselves ever since. The result has been that the national political discourse and national political parties have been locked out of Tamil Nadu for all these past 5 decades.

The bad thing which came out of this anti-Hindi feeling has largely been detrimental to the overall economic interests of the State and its people, though many will argue (even now) that it was the best thing that could have happened for Tamil Nadu (apart from reduced plan allocations and constant challenges, I don’t know what we gained – if someone can elaborate, I would be more than happy to listen without a murmur). In the Sixties and Seventies, when Tamilians educated in Tamil Nadu purely in Tamil and English travelled to Delhi or Mumbai or Calcutta, they were at a big disadvantage. Those days (and even now), the Northern and Western regions of India had the biggest economic investments (both by governments and private sector), and offered more economic opportunities to job seekers. While English was the business language, more often than not it was not the spoken language in the office – it was almost always Hindi.

Who lost out?

Tamilians and Tamil Nadu. India is a country with more than 28 official languages and over 200 dialects. But, 70% of the populations (that is 900M as of now!) speak Hindi in almost a native fashion, or they learn the language from primary school onwards. Another 10% of the population (that is, another 130M people!) understand Hindi well, and would respond in Hindi if spoken to in Hindi.

So, a Billion people can operate in Hindi.

How about Tamil Nadu? It has 68M people only, just 5% of India’s population.

While I am not saying it is compulsory for everyone in the country to learn Hindi or speak Hindi, look at the advantages which I lacked as a non-Hindi speaker. One’s acceptance is higher at business offices, in government offices, in industrial environments and surely in society. Further, one would not need English sub-titles while watching Hindi movies! I survived with extremely half-baked and poor Hindi, and had to mostly depend on others to get my way through. I got into several tricky situations because I insisted on speaking only in English (you cannot blame me, apart from Tamil, English was the only other language that I know!).

I suffered quite a bit during my sojourn in Mumbai for some six years. I always felt left out, and my rather late attempts to learn Hindi did not work out as I just could not recall the right word at the right time. If only I had had the opportunity to learn Hindi even as my third language in my primary school, I would not have had any problems.

At the end of the day, it is the business and social acceptance across the country, notwithstanding any perceived language or cultural supremacy. Tamil is rarely spoken outside of Tamil Nadu in India – except in Tamil communities spread around the country which also speak Hindi fluently as they have settled in the so-called Hindi heartland due to economic or job necessities.

Why take up a fight against Hindi and waste precious time now? What is it going to produce in terms of benefits to Tamilians?

The world is moving fast, and India is moving very fast. Tamil Nadu should worry more about keeping its #3 rank in the State-wise rankings of GDP, it is in a good position to overtake Uttar Pradesh which has three times its population. Let us focus on bread and economics, and jobs and wealth creation for Tamil Nadu. That is a more important fight (in a positive manner, competing with other States of India) than spending an inordinate amount of time on language issues. If Tamilians wish to proceed and establish strong working relationships with Northern and Western regions of India, I would say learning Hindi is a good place to start – a positive thing to progress economically, rather than a negative thing which will impact Tamil. Tamil will never be impacted, it is a language which has stood the test of time over 30 centuries or even more.

Let us make language-based fights and issues a thing of the past, and focus on what is best for our people.


Vijay Srinivasan

29th November 2017

Surgical Strike Demonetization

The Indian Government carried out a rapid surgical strike last week by demonetizing the 500 and 1,000 Rupee Notes, with the aim of curbing “black” money and eliminating terrorist financing from across the border.

People were obviously shocked as the Prime Minister announced it late on 8th November evening, with almost immediate effect. There was no time left for anyone to “spend” their money denominated in the above two Rupee notes, and since the notes became illegal tender almost right away, people were stuck with millions of such currency notes. While the idea was to eliminate black money, and various ideas have been on the table for a long while, the way it was executed was typical of the style developed by the Indian Prime Minister, Mr Modi. He has been on a mission against black money from the time he assumed office but has been stymied by gridlocks in the system, and even by non-cooperation witnessed in overseas jurisdictions where Indians stash their illicit monies (such as Switzerland). But it appears that he is not a man who would give up easily. The black money hoarders have been hit hard by the new executive order (which has been challenged in Court by the way) as most of them stored the higher denomination notes.

The other group of people who have been hit below the belt are the terrorists from across the Pakistani border, who have always brought in fake Indian currency of higher denominations, and used the same for their terror-making purposes in the Kashmir Valley and elsewhere. Now that would be stopped forthwith by a determined Prime Minister, who is hell bent on stopping them from crossing the border as well.

Of course, in any such well-intentioned measure taken by the government, there will always be collateral damage. Millions of poor people have been affected because they do not have access to bank accounts which are mandatory for crediting of the currency notes (only INR 4,000 will be paid out in smaller denominations, or in the new INR 2,000 currency note, and the balance of the money that you bring in has to be credited to your own bank account). India is a cash economy, and also has a parallel economy which is run entirely with cash. Given the predominance of cash, it is no wonder most people try to keep less number of currency notes by adopting the 500 and 1,000 currency denominations. I always keep 500 Rupee notes when I travel as these are convenient for transacting, and a 500 Rupee note is just the equivalent of SGD 10.50 – in India the 500 Rupee note now delivers what 2 x 100 Rupee notes used to deliver in 2008, given the serious inflation which has occurred over the past 8 years. Hence, it is no wonder people step out of their homes with at least 4 or 5 x 500 Rupee notes when they go shopping. Credit and Debit Cards are not popular. Recent stories of how ATMs have been compromised and Debit Cards have been copied do not generate confidence. Cheques are not accepted in shops. That leaves most people with plentiful cash.

Mr Modi’s action is not a political initiative. I think it is a specific action plan put together with the collaboration of the Reserve Bank of India and other leading banks, with the main aim of curbing the growth of black money. From that perspective, I believe it is a very good initiative with aggressive execution. Such an action sends a strong message to all in the country, including politicians, industrialists, lobbyists, commoners, et al, as well as terrorists. It also sends a powerful message to overseas Indians.

Of course, I think it is not correct to let millions of “small” people with urgent requirement to convert 500 Rupee currency notes suffer, when the government-owned banks have run “dry” of the required change of small denomination notes. It is also not correct to hand over the new 2,000 Rupee notes to these folks, as their primary need is to spend small money, and this new note (most of the country is yet to see these new notes) is difficult to convert to smaller 100 or 50 Rupee notes which are in huge demand today. India always has problems in the planning and quality of execution, though the Prime Minister is teaching India on the speed of execution and its logical necessity. This situation is no different, and the government will do well to have a more detailed planning for the implementation of future such initiatives – the Prime Minister has promised more steps targeting black money in the coming months.

The country has to get ready, and should start to think “small” – I mean, spend money in small currency notes from now on. Hoarding of the new 2,000 currency notes will not be a good idea, as it is supposed to be traceable with some unique characteristics.

The other collateral damage was caused to millions of tourists who visit India during the current season of cool weather, who have been left holding 500 Rupee notes with no possibility of exchanging at their airports of departure. May be they will remember their India visit during this particular occasion of demonetization and frame these notes when they are back home in their respective countries. One day, these invalid currency notes might fetch a premium in the market, who knows?

Obviously, the politicians are the most affected as they stash huge amounts of cash all over the place for their illicit activities such as vote buying, and buying of members of state assemblies/parliament, influencing ministers, etc., They will be cursing the super human efforts of Mr Modi in obliterating their ill-gotten wealth.

There have been numerous WhatsApp messages about the demonetization topic, and some of these show the now invalid notes being used to hold peanuts, as a joke of course. I have several of these notes and have to find a way to convert; there are millions of people overseas who have the same problem. May be we will sacrifice these notes for the benefit of India and endorse the attempt to convert black money to white eventually, though it is going to be a long, long time before that is accomplished even to the extent of 90% of the currency notes in circulation in India.

I would like to complement the Indian Prime Minister for this initiative, but at the same time would like him to pay more intense attention to the execution process and elimination of inconvenience to the poor and downtrodden folks who need to lead their lives in a routine manner instead of queueing up for the entire day at the ATMs (which are not working) or at the bank branches.

Let us hope this initiative will produce the planned and desired effects for the Indian economy,


Vijay Srinivasan

13th November 2016

The Greek Tragedy

Well, you might have wondered why I haven’t yet commented on the most important topical issue of the Greek exit from the European Union (“Grexit”).

It is now increasingly looking inevitable, given the intransigence of the Prime Minister, Alexis Tsipras, and his Finance Minister, Yanis Varoufakis. It is now certain that tough conditions set by the creditors would not be accepted by the Greek Government. The Prime Minister has called for a public referendum on the new bailout terms, which is an obvious ploy to get all the new terms completely rejected by Greek citizens.

Greece has lived beyond its means for several decades now. Borrowed money has been helping Greece survive tough economic conditions. Greece has a porous tax collection system and a welfare economy, both of which cannot be sustained at the current rate. It is only natural that its creditors, especially the International Monetary Fund and the European Central Bank, would call for sweeping reforms to be implemented.

But the real fact is that the creditors are only asking for incremental reforms. For instance, they are asking for increase in Value Added Tax that a consumer pays in a restaurant. They also want reduction in pension payments. When the Greek Government wanted to increase the corporate income tax rate to 28% (from 26%), the creditors actually said no to that proposal, as such a hike would affect economic recovery of the business situation. I am sure there are some tough terms and demands by the creditors who have been giving billions of Euros in credit to Greece – it is only to be expected, especially when they see a strong move away from financial obligations by the new Leftist Government, led by Mr. Alexis Tsipras.

It is hard to understand the rationale for not compromising and settling on mutually acceptable terms. The situation looks very bad for the European Union as Greece could become the first member of the Union to exit, with the attendant exit from Euro currency. That would lead to worldwide impact, as a Greece exit would become a precursor to an Italian or Spanish exit as the economic situation in those two countries are getting worse as well.

Germany has taken a hardline approach towards Greece, for the above reasons. However, it appears such a tough approach has not worked, and Greece is now inching towards a “Grexit” from the European Union. This is not good for Greece, and not good for Europe. It would also have political impact of the negative variety, with Greece moving closer to Russia.

The time to compromise is now – over this weekend. If this opportunity is missed, then all hell is likely to break lose, and the Greek Tragedy could be enacted for a worldwide audience. Such a drama would see the Greek banking system shuttering, with the deposits of Greek citizens evaporating – this is not a joke, it is now becoming a reality.


Vijay Srinivasan

27th June 2015

Markets ahead of Performance

The Indian Stock Markets have run up in a huge fashion over the past 6 months based on the euphoria created by the elections and the new government of Mr Modi.

Is it justified ?

Partially may be – but not to the extent of over 27.8% in 8 months (from April 2014 to Nov 2014), attaining the position of the best performing stock market in all of Asia Pacific and the second best in the entire world.

Simply because the actual performance of the government is yet to be seen. Yes, the inflation has come under control and trade deficit appears to be improving. Yes, promised decisions on insurance FDI (Foreign Direct Investment holding) and taxes appear to be on their way in parliament (not yet a done deal).

Any reform that the government wants to implement will be challenged in the upper house of the parliament by the opposition parties, even if it can get through the lower house which is now controlled by the ruling party.

The most important indicator was the GDP growth. It has dropped to 5.3% in Q2, from 5.7% in Q1.

But the BSE Sensex stock market rose by 255 points last week Friday. Obviously there were external considerations, the key factor being the dropping oil prices which benefited the stocks of oil companies.

The conclusion that one can derive from an analysis of market behavior and government performance is that, as usual, the markets are way ahead of physical realities of India. The global investors are watching and waiting – the portfolio investment inflows are only half of what India received in 2010. It does not matter if the Indian stock market is the best performing in the world, if government fails to deliver on its committed reforms and people do not benefit at the end of the first year of the new government.

It is critical for investors to understand that without the much-needed reforms and tax changes, India will continue to be a difficult place to do business in and business with. Land acquisition reforms are absolutely critical to ensure some success of the “make in India” slogan of the Prime Minister.

India still suffers from high interest rates, and the government and the Reserve Bank of India (RBI) do not seem to be in sync on interest rate policy. High rates are choking credit growth for the industry and for the consumers. RBI’s worry is inflation, but that being contained now, it is time to relax a bit and drop the rates. Of course, that action will further boost the already high stock indices, but more importantly will reduce the cost of doing business.

Overall, I would expect the stock markets to correct somewhat in the next couple of months if the RBI does not reduce the interest rates. And more so, if the government fails to pass reform bills in the Winter session of the parliament which is currently going on.

Let us see how things unfold.


Vijay Srinivasan
30th November 2014

The Struggle for Tax Filing

I had to submit my tax forms for India Income Tax before the deadline of 31st July.

I decided to do the rather “taxing” work over two weekends.

Today I submitted the form online via a tax-filing website service.

The issue in India always is the amount of data that the tax department demands from you, though they have access to all the data about your financial transactions (in India you have to quote your PAN or Permanent Account Number for all major financial transactions). All the financial institutions declare transactions by their customers to the tax department.

I always wonder why the whole thing could not be effectively and efficiently automated.

I know that the U.S. tax forms are even more complex than the ones in India, and may be the U.K. is also complex from that perspective of the taxman digging around for data that they already have access to.

I had to collate a lot of data even before I started off on the website. Selecting an online service (about which I had written an earlier blog piece) is a challenging task, because thorough investigation of the features and functionality may not be entirely visible when you start off with any one of these services. And, you will find later on, that some required functionality is not available !

This year I was clear that I need to have a service which does all that I require and desire !

Well, somehow, I got through today and submitted. It has been tedious, but you come out of it feeling somewhat good. Surprising, isn’t it ?

Yes, it kind of gives a satisfaction when you compare the online services with the past when one had to work with chartered accountants for filing tax. Not a pleasant experience, though the efficient ones take care of you for good and do everything, but they do charge a hefty amount as fees.

I believe that I have become a bit wiser on the Indian Income Tax rules because sometimes I had to refer to the rules (available online, of course), before making a decision on what to do with a particular type of income or deduction entry.

Well, you would see a big rush of millions of Indians over the next ten days or so, trying to file their respective taxes. No one wants to file early, I don’t know why !

Have a good weekend,


Vijay Srinivasan
20th July 2013

The Cyprus Fiasco

Cyprus is a very small country with little population.

However, what is happening in Cyprus has huge ramifications.

Last week I thought that the Cyprus Parliament would act firmly and very strongly against taxing bank depositors – common and not so common folks who have deposited their monies in the local banking system.

There must surely be other ways to satisfy the demands by the European Union to find Euros 5.8B of own money so as to obtain Euros 10B as bail-out package ???!!!

Even people with little money invested in bank deposits are now going to get hit, and those richer folks with over Euros 100K are going to be taxed to an extent of 60%. Yes, it is not a typo, the figures that are rumoured about is in the range of 60%.

The worry is, if emerging economies find themselves in a similar situation, would they be forced into taxing their huge base of depositors, who have kept their hard-earned money in the local banks ? Unlike the politicians and richer folks who have spread their monies across the world in various tax-free countries, which do not ask many questions before opening bank accounts.

Things are not looking rosy for the world economy, surely not for the European economy. I am sure countries should now be rethinking the wisdom of staying on in the European Union.

Cyprus is virtually getting forced into acting in this manner, by taxing the savers. It is surely not a good sign. Is the government going to return the depositors’ money when the economy turns around ? Is there any guarantee at all ?

I hope the emerging economies do not get any “bad” ideas. Something like – “well my current account deficit should be at 4.3% but it is now at 6.7%, I am not able to bridge the gap, and even if I wish to bridge, I cannot as the elections are just about a year away, so I need to keep major subsidy programs alive. The only thing that I can think of is taxing the millions of depositors who have been foolish to keep their money in the bank deposits”.


Vijay Srinivasan
31st March 2013

The Case for Raising Interest Rates

This post is in the context of the current economic situation in India.

There was a report yesterday in The Times Of India that the Government of India is prodding the Reserve Bank of India (RBI) to drop interest rates in the upcoming review of interest rate policy.

I do not think that the RBI will yield to government pressure, having stood tall over the past many quarters with an independent and fair analysis of the state of the economy. There is no issue with the government wanting to raise the GDP growth rates, but it must first reduce the current account deficit to a Parliament-mandated target.

While Finance Minister Mr P Chidambaram has worked hard on the Budget that he unveiled last month outlining measures to reduce the deficit, still much needs to be done. India was never short of policy planners and strategists – but India always had a problem with execution.

It is commendable that the Finance Minister has not yielded to an election year scramble for spending tax-payer money on populist measures, and has controlled the urge to spend more. But he needs to do more to ensure that the inflation is brought under check by eliminating supply-side bottlenecks which continue to hobble the Indian economy.

What has the government done to at least reduce the inflation by couple of percentage points ?

NONE, nothing that anyone can see.

Infrastructure wreaks under the ever-increasing load, and there is no determination on the part of the various ministries to concentrate their efforts on removing all hurdles on the way to growth.

The blame of slowing economic growth cannot be laid at the doorsteps of the RBI.

In fact, I would argue that the RBI should now declare a upward bias on interest rates, since the consumer inflation is again going up. Real estate prices are skyrocketing when the entire economy is decelerating. I don’t think India will exceed 6.2% GDP growth rate in the year starting in April 2013 – at best it would reach 6.0%. RBI need not throttle growth but it should warn the government and the business leaders that it won’t drop interest rates to oblige their priorities and put the common man on the mat.

Government can do a lot more than what they have done so far. It has been a total systemic failure of economic policy making at the senior levels of the government which boasts of Dr Manmohan Singh as the architect of the 1991 economic reforms.

But, the spectre of 1991 is returning to India, and all our foreign currency reserves and gold reserves won’t be able to save us this time also.

Reduce the deficit below 4.6% and then something can be done on the interest rate policy – till such time, growth has to contend with inflationary pressures ever-present in the economy.


Vijay Srinivasan
10th March 2013

Preparing for the Upcoming Boom

What ?

Do I think that an economic boom is coming ? And that too, in India, which is currently facing an economic deceleration ?


I do think that good times are around the corner.

Does not appear to be so. To anyone. To the World Bank. To the IMF. To the economic analysts. Or, even to stock markets.

But I can (as well as anyone) see some early signs of an economic turnaround on the verge of happening in the Indian economy.

All of us know that government policy-making is a key determinant of “feelings generation” in business/industry mindset. What I mean by that ? Industry captains and business executives have to “sense” an improvement in policy directions that would benefit them in the short to medium term. And that sense would then generate positive feelings about the turnaround of the economic situation. And that would then in turn, lead to some early investment decisions. The induction of Mr P Chidambaram as the Finance Minister and his reversal of the retro-active / regressive tax policies introduced by his predecessor (currently the President of India) are sending strongly positive messages to the business and investment communities world-wide.

The other key determinant is domestic consumers’ consumption patterns. It is apparent to everyone that the real estate market is holding up pretty well in key markets in the country. Car purchases are going up. Two-wheeler purchases are holding up. People are still buying jewellery. When airlines announce a big drop in seat prices on a fire-sale, people pick up almost all the seats on offer. There are big crowds in malls. People are still going to movies and restaurants – difficult to get a movie ticket, except when you try to book online. Though fuel prices have largely been deregulated, people are no longer shouting at the government for doing so in an aggressive fashion.

And, what about the inherent demand for almost everything in India ? There is a huge unmet demand, so industry will continue to thrive once certain restrictive policies are pushed out.

Interest rates ? These are critical for CAPEX investment by industry, and the current trend of inflation (dropping to some 6.2% at the wholesale level) is a very positive indication to the RBI (Reserve Bank of India) to tend towards rate reductions in March timeframe.

All of the above are indicating an economic recovery for India. While India is struggling on the exports front due to the difficult economic situation prevailing in the U.S. and Europe, the domestic economy is so huge for India that it never was dependent on the trade to drive its economy forward. While trade is becoming an important component of India’s economic strategy, it is nevertheless in the second spot for India.

So, there we go. One of the largest domestic economies in the world, having almost an insatiable demand for all manufactured goods, is now turning the ship towards good times. In the next nine months, I won’t be surprised if India reaches an annualized GDP growth rate of 6.5 to 7.0%, and then move ahead with that momentum towards its old goal of 8.0%.

So, let us not believe the doomsayers. Things are on the upswing, and we will see the positive economic impact soon (towards the end of 2013).


Vijay Srinivasan
23rd Feb 2013

The New Hope

Well, after a fairly long time of around two years or so, there seems to be light at the end of the tunnel for the Indian Economy.

Any such economic progress would not have been possible without a new leadership, and so was the case here as well. The new (and not so new, if you know what I mean !) Finance Minister of India Mr P Chidambaram (PC as he is referred to in the media) brought significant hope when he assumed his new post several months ago. The previous Finance Minister thankfully left the job and became the President of India, which is largely a ceremonial post at the apex of the Indian state which has a Prime Minister driven British-style Cabinet and Parliament system ruling the country.

PC has been successful in the past as a proven Finance Minister before he went on to become the Home Minister in the aftermath of the Mumbai 26/11 terror attacks, again replacing a rather ineffective minister. He did a fairly good job as the Home Minister though opinions vary and no section of the society is entirely happy with the fact that justice had not been served for the 163 lives lost in that gruesome terror attacks wreaked by Pakistan-based jihadi terrorists.

Now PC is back in the Finance Minister mantle with an unenviable task of fixing the weakening economy – India’s GDP growth rate for the current fiscal year ending on 31st March 2013 is not expected to be more than 5.75%, a big fall from the previous year even, and a huge fall from the 8%+ growth rates prior to 2009. Inflation and huge subsidies have caused big harm to the citizens and the economy, and the Reserve Bank of India has not been seeing eye to eye with the Government on the need to cut interest rates.

PC and RBI Governor seem to be having divergent views on the need to balance the economy between the twin challenging goals of economic growth and controlling inflation. Though PC has publicly stated that there is commonality in the view points, no one is fooled.

It would be interesting to see what the RBI does to the interest rates in the economic review coming up shortly.

Notwithstanding all this, there is lot of hope amongst business and industry that PC will do whatever it takes to rein in the fiscal deficit and restart India’s economic growth in a trajectory headed towards the 8% magic figure. It is definitely possible, but PC needs all the cooperation that he can get from the rest of the Government and the RBI.

There is surely new hope for India after a fairly long time ! Let us hope for the best !! For the citizens and the industry.


Vijay Srinivasan
27th January 2013