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Air India Ghar Wapsi, RBI Repo Rate, Lekhimpur Kheri, Aryan Khan | Last Week in India: W39 2021


T K Arun

India Last week’s news was dominated by the mowing down of five people, as a convoy of Sports Utility Vehicles, with Union minister Ajay Mishra’s son inside the lead vehicle, rammed into a crowd of farmers carrying on with their year-long protest against the Modi government’s three new farm laws, on a road in Lakhimpur Kheri, in eastern Uttar Pradesh. Three more people were killed, allegedly by the incensed farmers who managed to catch hold of some occupants of the vehicles that drove into them, with no attempt to decelerate, going by the video footage that surfaced soon enough.

The minister, a local strongman and second-time Member of Parliament from that area had been sworn in as the junior minister for home and a Brahmin face for the BJP ahead of the crucial assembly elections next year. Initially, he denied his son was present on the scene. The Supreme Court took the UP government to task for not arresting the culprits in this contemptuous display of the arrogance of power that holds ordinary people on the same plane as insects who can be crushed with impunity. The minister told the press that, had any other party been in power, no one would have dared point a finger at a minister’s son.

After the Supreme Court’s public scolding, the UP police called Ashish Mishra, the minister’s son, in for questioning. But not before Opposition leaders making their way to Lakhimpur Kheri were stopped, arrested, and otherwise intimidated. Congress leader Priyanka Gandhi spent time in jail after she was arrested en route to the site of the violence.

The incident offers a good measure of the democratic temper in this part of the country. A minister’s son and his henchmen could assume that their position of power gave them license to do as they pleased, even to the extent of taking lives in a most brazen, public fashion. The government thinks it can get away with stopping the movement of Opposition leaders to prevent their displays of solidarity with the victims of violence.

Those who disdain democracy would, in all probability, have been proven right, but for the data revolution, unleashed by Mukesh Ambani’s ultra-low-cost introduction of 4G telephony via Jio, and the ubiquity it has spawned of smartphones that videograph virtually anything of significance going on anywhere in the country and upload the videos that result to some app that makes them available to the larger public.

Videos of the SUVs approaching the crowd of farmers on the road, making no attempt to slow down and then mowing people down have been doing the rounds on social media.

The other major event to dominate the airwaves was the official announcement that the Tatas had won the bid to buy state-owned airline Air India. Air India had belonged to the Tatas, till it was nationalized in 1953.

The good part of this deal is that it removes a jinx that seems to have gripped the privatization of public enterprises. There is no reason why the state should continue to run businesses in non-strategic sectors, especially when all it can do is to make losses in the process.

Private airlines have been doing well in India. Jet Airways lost out essentially because of loose expenditure management, spending, under some heads of non-core expenditure, up to 18% of revenue while a well-run airline like Indigo spent 2% of revenue under that head, making Jet’s excess expenditure seem like money being siphoned out of the company. Air India has been bleeding for a long. It has been bailed out time and again by the government.

The privatization fetches the government all of Rs 2,700 crore, while the Tatas take over Rs 15,300 crore of the debt the airline has. The government had to sequester Rs 46,212 crore of the airline’s debt in a special purpose vehicle, along with the airline’s real estate holdings.

The Tatas will not get Air India’s iconic buildings on Mumbai’s Nariman Point, for example. Instead, they will get Air India, its fleet of aircraft of multiple makes, a large employee strength, a low-cost subsidiary, Air India Express, and 50% in a ground-handling company.

This is not so much because the government is mealymouthed when it comes to real estate, as because it is virtually impossible to get any civil servant to sign off on a privatization deal that entails prized real estate, whose valuation can be disputed later by some proud inheritor of the mantle of former Comptroller and Auditor General Vinod Rai, who introduced the concept of notional loss to the auditing of government expenses. If the real estate assets of Air India had been included in the deal, the sale would have stalled before take-off.

The Tatas already own two airline brands: Vistara and Air Asia India. They have a large pool of manpower to redeploy across airlines as well. How Tatas manage the merger, aligning staff compensation, seniority, and corporate culture, offers scope for many a case study at India’s management schools.

TCS, the Tata Group’s information technology services company and main source of cash, declared its Q2 results. Net profits jumped 29% to Rs 9,624 crore.

In another major development, 136 countries agreed on a major overhaul of corporate tax. The reform has two components, or pillars, in the jargon. Pillar 1 allows every country to tax a large multinational company operating in its jurisdiction, even if it does not have an office there. It would apply to companies with a turnover of at least €20 billion and a profit margin of at least 10%.

A quarter of such multinationals’ profits over and above that threshold profits of 10% of their revenues would be available for taxation by countries where they operate. Pillar 2 says every jurisdiction would have a minimum tax rate of 15% on corporate incomes. This hurts low-tax jurisdictions such as Ireland and the Netherlands, apart from acknowledged tax havens such as the Cayman Islands, the British Virgin Islands. The deal culminates a long campaign by the rich country club, OECD, to end tax-base erosion and profit shifting by transnational enterprises.

Business is now global, but taxation is by national jurisdiction. Transnational enterprises find it easy to do what is called tax planning to avoid paying tax pretty much anywhere: Apple, for example, had shifted its IPR to a subsidiary to a company in a tax haven, so that all royalties accrue outside its home country.

The company did not use to pay dividends either, simply adding profits to its reserves, so that the share price would go up, reflecting increased net worth. When shares are sold, what you get are capital gains, which are taxed at a lower rate, as compared to regular income in the US. This is why the tax rate applicable to billionaires in that country is lower than the rate of tax that working people bear.

The Biden government’s need for additional tax revenues to finance its major social sector and infrastructure plans gave the campaign against base erosion and profit shifting the teeth it needed when US treasury secretary Janet Yellen called for a global compact for a minimum rate of corporate tax.

This development is proof that globalization is growing apace, rather than taking a knock, as many had declared in the wake of Brexit and the Trump presidency.

The Monetary Policy Committee of the Reserve Bank of India decided, at its bi-monthly meeting last week, not to raise its policy rates or to alter its accommodative stance of monetary policy. However, the RBI has begun to suck out excess liquidity, through a variety of reverse repo windows.

In a repo, the banks sell to the RBI government bonds, with a simultaneous agreement to purchase them back, at a given price. The difference between the sale price and the repurchase price of a security for the interval between the two transactions gives an implicit rate of interest. It is such a rate for overnight repos that acts as the RBI’s essential policy tool to influence short-term rates. In a repo, the RBI takes in securities and hands out money, making it the rate at which a bank can borrow funds from the central bank.

In a reverse repo, the RBI sells securities to the banks, taking in money. The reverse repo rate is the most secure lending rate for a bank, as its borrower is the RBI. Any other lending would be at a rate that carries a risk premium as compared to this risk-free rate. By expanding the range of reverse repo auctions, the RBI is signaling its intent to begin liquidity tightening. It is central-bank speak for “Lord, give me chastity and continence — but not yet!”

Moody’s upgraded India’s rating from negative to stable. September saw robust job creation, with more people employed since March 2020. The Purchasing Managing Index for manufacturing and services continued to be above 50, indicating expansion.

Kanniyakumari cloves obtained a Geographical Indication tag. So did Karuppur Kalamkari paintings and Kallakurichi wood carvings. A GI tag means that people elsewhere cannot present their produce to consumers using the region’s name attached to the produce. Only sparkling wine from Champagne in France gets to use that name, however well or indignant other similar wines might bubble. Kanyakumari (the more conventional spelling), Karuppur, and Kallakurichi are, of course, places in Tamil Nadu, where people see homage, rather than an attempted knock-off, in adopting other people’s names. The nodal officer for registering the GI tags in question is advocate Sanjai Gandhi. And the state’s chief minister is, of course, Stalin.

It was only recently that US president Biden had called Indian media well-behaved. The committee that hands out Nobel prizes rubbed salt into the wound, by awarding the Nobel Peace prize to journalists for their dedicated work to advance human rights and democracy: one from the Philippines, one from Russia — and none from India.

That the task is tough for reasons other than journalists’ own capabilities and commitment amidst the institutional constraints they confront was driven home by a whistleblower, Frances Haugan, who released a bunch of documents from Facebook. These show the company’s use of algorithms that cause psychological damage, spread hatred, and even instigate violence, because of these algorithms’ ability to keep people glued to an ever-expanding stream of posts and feeds that reinforce their neuroses. Clearly, social media platforms need to bear the same responsibilities as mainstream media.

Targeted killing of Hindus and Sikhs in Jammu and Kashmir spawned fear among the state’s religious minorities. The task before the administration is to not just hunt the attackers down but to send out the political message that it stands for the unity of all Indians regardless of their faith. The opposite message is ringing loud and clear in, for example, the burgeoning campaign for the Uttar Pradesh assembly elections.

Shahrukh Khan’s son Aryan Khan, 23, was arrested in a drugs raid aboard a cruise ship at Mumbai, detained, and charged with being part of an international drug syndicate.

Income Tax searches that have been proliferating on the BJP’s political opponents were carried out on Maharashtra politician and Sharad Pawar’s nephew Ajit Pawar’s family members.

The wheels of justice grind slowly indeed when it comes to the sub-species of Homo indicus, Godmen. Dera  Sacha Sauda head Gurmeet Ram Rahim was finally convicted last week for the murder of a Dera manager in 2002.

Indian and Chinese troops faced off in Tawang, during patrolling, as both sides build up troop and weapon deployments along the border.

The Islamic State claimed a bomb attack on a Shia mosque in Kunduz, northern Afghanistan, killing scores.

Narendra Modi and his new Japanese counterpart, Kishida Fumio, had a conversation on strengthening the Quad. The Japanese used to put their surname first, like the Chinese. Mao is Mao Zedong’s surname, obviously. But when Japan decided to westernize, the Japanese started putting their surname last, as westerners do. Recently, the Japanese plumped for cultural authenticity and resumed putting their surname in the beginning. Many media outlets refuse to accept the change and continue with the earlier naming convention. Kishida is the man’s surname.

US Deputy secretary of state Wendy Sherman visited India last week, met foreign minister Jaishankar and foreign secretary Shringla. They agreed on Afghanistan and to disagree on India’s purchase of the S400 anti-missile system from Russia.

The Supreme Court decided to resume physical hearings, twice a week to begin with. It had the satisfaction of seeing the government appoint and transfer chief justices as recommended by the Court’s Collegium, including  Justice Akil Kureshi, as the chief justice of Rajasthan high court. Kureshi’s appointment became controversial over the government’s refusal to accept, on an earlier occasion, to appoint him as the chief justice of another major state, Madhya Pradesh.

Instead, he had been sent to Tripura. Justice Kureshi it had been, who had sent Amit Shah, now Union home minister and then a Gujarat home minister and an accused in encounter killings, to jail. He happens to be the great-grandson of Imam Manzar, a wealthy businessman in South Africa who, influenced by Gandhi, followed him back to India and built his residence in Sabarmati, where Gandhi built his Ashram.

The Congress Working Committee meeting, long demanded by the Group of 23 seeking inner-party reform, has been convened for October 16th. Rahul Gandhi might not be the formal president, but continues to take decisions, such as the one imposing Navjot Singh Sidhu as party head in Punjab, leading to Captain Amarinder Singh’s incipient rebellion. Now, in Bihar assembly byelections, the Congress has announced its own candidates in seats being contested by ally, the RJD.

First Published in Substack India Last Week: 4-10 October 2021 on October 14, 2021.

Read another piece on Politics and Twitter by T K Arun titled Stopping Fakes on Twitter! in IMPRI Insights

Read another piece on COVID-19 Vaccine by T K Arun titled Increasing Vaccine Production: India an Answer to Global Woes in IMPRI Insights

Read another piece on COVID-19 Vaccine by T K Arun titled Bold Vaccination Policy Needed in IMPRI Insights

Read another piece on Israel Palestine Conflict by T K Arun titled Netanyahu Culprit of History? The Politics of Israel- Palestine Conflict in IMPRI Insights

Read another piece on Retrospective Tax by T K Arun titled Mamata Banerjee Wins Over Voters in Bhabanipur and Congressmen Elsewhere, Economy Revives, Only to Face an Impending Energy Crisis | W38 2021 in IMPRI Insights

About the Author

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T K ArunConsulting Editor, The Economic Times, New Delhi.

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