Onions

The RBI admits that reduction in remittances from the Gulf may have a larger affect on certain parts of India than others.

It is comforting to know that the RBI is conversant enough with over half India’s annual capital requirement to appreciate that if Indian workers from the UAE have not been paid for four months, and a fraction may not be paid ever, that this may not be good news in Kerala.

The good sheiks running Nakheel Construction indicated to the Nasadq Bourse in Dubai that the trading of their bonds was inconvenient, price down 50%, and that trading should be halted until the sheiks believed it convenient, or had a better story to tell.

The RBI is nonetheless emboldened with the second quarter GDP growth numbers, 7.9% versus an expected 6.1%, to suggest that it will review its forecast of 6% GDP growth for the fiscal year in January.

Presumably the RBI will contrast the GDP growth numbers with the growth in direct tax collection, + 3.7%, for the same period and ask the niggling question, well, how is that possible?

The intrepid sleuths at Live Mint are to be commended for their review of the Indian GDP numbers excluding the effect of public spending concluding that growth comes in at 4.9%.

Yes, 4.9%, not 7.9%, and not even the adjusted 5.5% of the previous quarter and closer to the economic reality of direct tax collection. Indirect tax collection, customs and excise, by the way, for the month of October was down by 10%.

Government spending in India has included tax cuts, lower interest rates, and an increase in pay for government employees.

The RBI began the process of making credit less available last month by increasing the amount of money banks had to set aside to buy Indian government bonds because, among other things, Indian equity prices are up over 65% for the year.

That was before food prices started hopping. Onions have doubled, potatoes are up 40%, pulses 50% and prices for essential items in November 17%. Onions are a killer, and can be for bankers well as politicians. The bonus for government employees has been paid.

The RBI should revisit its 6% growth estimate for the year, but get the direction right.