The ekanomist mag oozing advice on how yindia should go about managing its capital controls regime. If you can ignore the TFTAn condescension and patronizing BS,not a bad read at all, IMO.
Raining on India's parade
IN INDIA, drought sometimes turns to deluge. This summer the country suffered its worst monsoon since 1972, which left half its rural districts parched, followed swiftly by floods that inundated two states. In recent years India’s economic policymakers have confronted a similar phenomenon. A once-sheltered economy is now increasingly open to foreign capital, which rained down on the country in 2007, only to evaporate last year. The rains are now returning: foreigners have invested $13.8 billion in India’s stockmarkets since April, having withdrawn $8.6 billion over the same period last year.
On October 27th the Reserve Bank of India (RBI) held its key policy rate at 4.75%, even though it is anxious about rising inflation. It is wary of attracting even more money from foreign investors, who are looking for high returns in a world of meagre yields.
Many emerging economies are reluctant to impose such controls. They fear such an infringement on economic freedoms will cast doubt on their commitment to market-friendly policies. Brazil seems almost apologetic about its taxes, which it insists are meant only to prevent excesses. India, by contrast, is less bashful about these things. It is proud of its “carefully calibrated” easing of capital restrictions over the past 18 years. It has no need to impose a tax on foreign investment in bonds, because such purchases are still banned beyond a fixed amount. Indian firms can raise money abroad, but the RBI sets limits on the amounts, rates and purposes of this borrowing. Foreign-direct investment (FDI) is welcomed enthusiastically, except in some industries, where it is spurned as an alien intrusion on the Indian way of life.
OK. so dilli is proud and less bashful about protecting the yindian peoples from external sector capital flow vagaries. So what? I'd say they earned it, the past 2decades of global ekhanomic history show. Turns out this point is by now so widely known and appreciated that even the mighty TFTA ekhanomist magazine cannot brush it away. LOL. But count on them to inject massive doses of condescension to overcompensate..... watch the decosntruction of this para....
Having avoided the Asian financial crisis in the 1990s and escaped the worst effects of the most recent meltdown, India’s cautious liberalisers feel they have won the argument this time around. It is hard to disagree.
{so far so good, the Conmist has actually uttered the unforgibavle - that dilli got it right on a conomic matter! OMG....need to 'balance' this perception now....LOL}
It is a
pity emerging economies cannot enjoy a shortcut to prosperity by importing capital reliably from abroad; it is a
pity they must rely so heavily on their own savings to finance their urgent investment needs;
it is a pity, in short, that the liberal case for the free movement of capital faltered. But falter it did.
Sala, baat bada bada karta hai, in true tfta tradition. Its not as if the conomist homeland of UK-stan is overflowing with capital that it zimbly needs to reliably export onlee. O yes, now i recall, everything from their pension funds to healthcare to social safety are broke and desprately need returns merely to stretch pretend-reality a while longer. And the very structure of the high-cost, high-debt, low-growth high-liability burdens that the emerged conomies currently are and evermore will become in the yrs ahead ensures those returns won't happen there anymore. Even the wall street types are at a loss as to what new bubble to spin to fool the world's capital into flowing into the hard-asset productive areas of emerged markets now. So, the tftas do the next best thing - create suitable perception top mask unseemly reality. Spin their necessity as a favor done to the emerging world onlee. Make 'green rules' to impose arbitrary protectionism on their own mkts and clamor for opening up and easing of controls in emerging mkts. Nice game, eh?
Must say it again - dilli must keep and maintain tight capital controls onlee. Market access to the lucrative yindian mkt must not be doled out cheap to the same powers that plied arms, money, drugs and nukes to chronic parasites like TSP.
The spin and condescension continues. Must really gall these UK-stani types to have to tolerate a vibtrant and growing yindia despite their resentment, moi sometimes feels.
[Full Disclosure: I have zero goodwill, zero, for UK-stani establishment types. I take every UK-stani word as psy-op and every UK-stani establishment action as being naturally unhelpful if not actively hostile to Yindian interests until proven otherwise.]
If the Asian financial crisis was not enough to give pause, eastern Europe’s present travails should. Yet there are better and worse ways to impose capital controls to avoid inflating bubbles or becoming overdependent on foreign lenders—and India’s are worse.
Of course, how can yindia's be better onlee saar? If yindia's become better what'll happen to the tfta salaries the ekahnomist and anal-yst types are currently drawing in emerged mkts and delivering relatively suboptimal results, eh?
Here, the moralizing starts in full swing and spin. Look at the righteous earnestness oozing outta each word....
For starters, they are needlessly complex, because India’s policymakers like to retain as much room for manoeuvre as possible. They police capital flows by banning some trades, imposing quotas on others, lifting a price control here or tightening a registration requirement there. This makes life needlessly difficult for foreign investors. The rules are hard to interpret and changes are impossible to predict. One private-equity fund and its investors reckon this confusion and ambiguity cost them $8m in lawyers’ fees. This accomplishes the policymakers’ aim of deterring foreign capital, but not quite in the way they intended. By raising the cost of doing business, the regulatory thicket acts as an implicit tax on investing in India. Its policymakers could achieve the same effect through simple rules and explicit taxes. The $8m that is now spent on lawyers could be given to the Indian government instead.
As if the tfta ekhanomist rag doesn't know why the rules are as complex as they are. Replacing the implicit obstacles with explicit obstacles only makes it easier for deep-pocketed phoreners to lobby and remove those obstacles much more easily than now. What does dilli gain in having that happen, eh? Much better to gothe prc way and keep things deliciously ambiguous such that domestic firms, industries and players benefit more and first, IMO. Its not as if emerged mkts are barrier free. Look at the Eu for a few examples.
Brazilian taxes are not the only way to put a price on inflows. Another, in a similar spirit, is to auction the right to borrow abroad. That would allow the RBI to set an overall cap on foreign fundraising, while letting borrowers themselves decide how much extra they are willing to pay for the privilege. Ministries which still impose an FDI ceiling on the industries they oversee should also abandon them. Few are justified.
{Yindian FDI restricted are unjustified. Must be true. Ekhanomist says so. No?}
Why, for example, does India permit 100% FDI in the manufacture of hazardous chemicals and industrial explosives, but 74% in telecoms, 26% in insurance and none at all in supermarkets?
Because yindia is a democracy, dude. It will work its way through these issues on its own time, than you. I'd rather domestic companies, headquartered here and paying taxes here, be the ones to get first and preferential access to these lucrative sectors like telecom and organized retail. Sure, do some tie ups and JVs for tech and such but no unfettered access to the phoreners here in sensitive sectors. Its not as if SBI will be allowed to open up hajaar branches in the US or the UK to compete with the bruised Citis and HSBCs, now, will it?.
Disclaimer: 400% moi 2 cents and IMVVHO onlee.