Tag: UPA

Jharkhand crisis: UPA MLAs shifting to Chhattisgarh as Governor delays decision on Hemant Soren disqualification

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As Jharkhand Governor Ramesh Bais is delaying his decision on the disqualification of Chief Minister Hemant Soren in office-of-profit row, ruling United Progressive Alliance is shifting its MLAs to neighbouring Chhattisgarh fearing horse-trading by the Bharatiya Janata Party.

The MLAs were seen leaving Soren’s residence in two buses towards the Ranchi airport where a flight has been booked for them to Raipur, sources said. Soren himself is seen on one of the buses.

“No unforeseen incident is going to take place. We are ready for everything, the situation is under our control. I will let you know if I will also go with the MLAs,” said Soren.

Jharkhand | Visuals from Ranchi airport where UPA MLAs have arrived along with CM Hemant Soren pic.twitter.com/CqFRUxDXob

— ANI (@ANI) August 30, 2022

Sources in the airport also said a flight for Raipur has been booked for the legislators. Soren’s JMM believes that the BJP may make a serious attempt to poach MLAs from it and from the Congress in a bid to topple the government in a manner similar to Maharashtra and there is a need to ringfence the legislators in a safe haven.

The Election Commission has recommended Soren’s disqualification as an MLA for violating Section 9 (A) of the Representation of the People Act, 1951, which deals with disqualification for government contracts.

The clause states that a person shall be disqualified if and for so long as, there subsists a contract entered into by him in the course of his trade or business with the appropriate government for the supply of goods to, or for the execution of any works undertaken by, that government. The issue was referred to the Governor and by him to the EC, as Article 192 of the Constitution states that on rulings regarding an MLA’s disqualification, the question shall be referred to the Governor who in turn shall obtain the opinion of the Election Commission and shall act according to such opinion.

The JMM, the largest party, has 30 MLAs, the Congress 18 legislators, and the RJD one. The main opposition BJP has 26 MLAs in the House.

With inputs from PTI

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How accurate are exit polls? Will it be a clean sweep for BJP in UP and AAP in Punjab?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Cometh the elections, cometh the exit polls. The buzz of exit polls has become synonyms with every state and general election. The moment an election is declared over, people curiously turn on their TV sets and scroll the web,  to satiate their curiosity.  Within hours the numbers come tickling in keeping people absorbed in the election cycle until the actual counting begins in a few days.

The exit polls have become an important part of India’s election cycle. But over the years, the idea of exit polls have also left political experts and opinion makers divided about their merits and demerits.

Some people who strongly defend exit polls say that the exit polls have the ability to predict an election result more or less accurately— as very often they have.

But there have been times when the numbers predicted by the exit polls have been hardly true. To some extent, the numbers have been exactly opposite to the actual outcome. This fuels people’s suspicion of the idea of having exit polls.

So where does the truth lie?

Predictions this time around 

Before we delve into this aspect, let us take a quick look at what the exit polls have to say this time around. Five states— Uttar Pradesh, Punjab, Goa, Uttarakhand and Manipur— went to the polls in a multi-phase election. The results for these states would be declared on March 10.

The exit polls for these states were released on March 7, and as usual, they have divided opinions. Most exit polls forecast a clear majority for the Bharatiya Janata Party (BJP) in Uttar Pradesh. These exit polls see Aam Aadmi Party (AAP) storming into power in Punjab.

The exit polls have given an edge to the saffron party in Uttarakhand and Manip. Many exit polls have also predicted a tight contest between the BJP and the Congress-led alliance in Goa, leading to a hung Assembly.

All this has led to intense post-exit-poll maneuvering and public statements from politicians either welcoming the predictions or rejecting them as flawed.

Also Read: BJP on pole in UP, Manipur; tight race in Uttarakhand, Goa; AAP ahead in Punjab

Accepting or rejecting exit poll numbers by politicians is not new.

Every year is an election year in India, and with an election comes exit polls. These exit polls are conducted by several agencies. The idea of exit polls is to predict the outcome of an election and hope that the survey is close to the actual scenario.

But the perennial question still remains. How many of such exit polls have actually managed to provide an accurate picture over the years?

When the pollsters got it right

One of the recent examples of the exit polls having the last laugh was the 2014 Lok Sabha elections, when most predicted a change of winds at the Centre, with the BJP-led National Democratic Alliance (NDA) storming to power.

News24-Today’s Chanakya was one of the polls that came closest to predicting the exact numbers. According to them, the NDA would bag 340 seats and the Congress-led United Progressive Alliance (UPA) would languish at 70.  The results of the election were surprisingly similar. The NDA had secured 334 seats while the UPA had won a mere 60 seats. News24-Today’s exit poll had nearly hit the bull’s eye.

2021 predictions: Left retains power in Kerala, TMC in West Bengal 

Consider, also, the 2021 Assembly elections in Kerala, West Bengal, Tamil Nadu, Assam, Puducherry and Mizoram. The exit polls were not far from the truth when they predicted that the Left Democratic Front (LDF) would retain power in Kerala while Mamata Banerjee-led Trinamool Congress would trump the BJP’s high-octane contest.

Today’s Chanakya’s predicted numbers had again come close to the actual result in West Bengal. The exit poll had predicted between 169-191 seats for the ruling TMC and between 97-119 for the BJP. Come the results day, the TMC won 213 seats while the BJP managed to secure 77 seats. While some of the other exit polls had also predicted a TMC win, but their numbers were far from accurate in terms of the actual seats won by the two parties.

Also Read:  BJP in UP, AAP likely in Punjab: Political analysts decode exit poll readings

The same was the story in  Kerala. Chanakya had envisioned between 93-111 seats for the LDF, and 36-44 for the United Democratic Front (UDF). The LDF managed to secure 99 seats in the 140-member Assembly, while the UDF 41.

In Assam, and Tamil Nadu, meanwhile, almost all the pollsters had got their prediction right, although, in Tamil Nadu, most had pinned the DMK-led alliance’s seats higher than what it eventually got.

2019: Got it right for the Big One; Not-so-lucky for State polls

The pollsters had more or less got it right with the 2019 Lok Sabha polls. The News18-IPSOS survey had predicted 336 seats for the BJP-led NDA and 82 seats for the Congress-led UPA while the India Today-Axis Poll had predicted between 339-365 seats for the saffron alliance.

Both the surveys proved correct. The NDA had retained power at the Centre with a thumping majority of 353.

A few months later during Maharashtra and Haryana state elections, the major survey agencies and news organisations had predicted a big win for the BJP and its respective state allies.

That was not to be though. As the post-result wrangling to form a government in both the states went on to display.

To be fair, in Maharashtra, the pollsters were not widely off-the-mark. It is just that they had not predicted the political drama and tussle between pre-poll allies Shiv Sena and the BJP, that would ensue. And in a bizarre turn of events, Shiv Sena broke away from BJP and came together with Nationalist Congress Party and Congress to form a post-poll alliance and form the government.

Goa Assembly Election: Parties formulate post-result strategies; BJP, Congress woo MGP

… And when they got it wrong 

But these exit polls have got it wrong too. Most memorably back in 2004, when the Atal Bihari Vajpayee-led NDA government had dissolved Lok Sabha to face elections eight months before the end of its term. NDA’s confidence was due to its success in Madhya Pradesh, Rajasthan and Chhattisgarh Assembly elections, and the exit polls which followed the dissolution of the Lok Sabha bolstered the view that the alliance would be well on its way to retaining power.

At the time, India Today had predicted 330 seats for the NDA, while other polls predicted that the NDA would get somewhere around 270 seats. But then the elections happened, and on the fateful day that the results started to trickle in, it became clear that the pollsters had got their numbers horribly wrong. Not just in terms of the number of seats, but also, in fact, the result: the UPA stormed to power, while the NDA, which the pollsters had predicted would manage to reach the majority mark, had ended up polling only 181 seats.

UP Exit Poll Results: Exit polls indicate BJP retaining Uttar Pradesh with clear margin

More recently at the time of the 2017 Punjab Assembly polls, when the pollsters had predicted massive support for AAP, is also an example of how exit polls can be way off the mark.  For instance, the Aaj Tak-Axis exit polls gave 18-22 seats to BJP+SAD, 56-61 to the Congress and between 36-41 to AAP while the TV 24 News gave 20-25 seats to BJP+SAD, 27-35 to the Congress, and a thumping victory to AAP with 70-80 seats. But then, as things turned out, Congress had emerged as the uncontested winner, bagging 77 of the 117 seats. SAD-BJP had netted 18 seats while AAP had managed to bag 20.

The long and short of this is that exit polls are a tricky business. As we can see, they do get it right, but more often than not they can more accurately predict the way the wind is blowing rather than, say, the speed with which it blows.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Challenges galore as Opposition seek common ground 

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Opposition parties in the country, to be specific of those who are in disagreement with the policies and programmes of the Bharatiya Janata Party (BJP) are exploring work on one platform in preparation for the 2024 general elections.

Nineteen of these parties at a virtual meeting organised by Congress president Sonia Gandhi on Friday decided it is time for a collective effort and confront the humongous political challenge before each of these organisations and the country in the form of the BJP.

Governing the country since 2014 at the Centre and in several states, the BJP under Prime Minister Narendra Modi and his colleagues have been in the pole position for the past seven years. Barring a periodic flourish in assembly polls, there are no major challenges on the horizon. Yet, the opposition nurtures hope.

Buoyed by the recent ‘’success’’ in retaining ranks during the recent monsoon session of Parliament, the majority of these parties are enthused that common ground could be found to work together in taking on the BJP-led government under PM Modi. Can the parliamentary opposition unity be replicated?

There is a principal difference in the approach of the BJP as against the rest. For the past seven years, the party has been in a constant state of motion through events and programmes crafted to make it visible in various parts of the country.

It is designed to allow its leaders to acquire a profile through policies and interactions with people. The Jan Ashirwad Yatras currently underway is one such instance. During these journeys newly–appointed Ministers in the Modi Council of Ministers are touring states they represent.

Also Read | Opposition dinner – just a splash or can it create a ripple effect

One of the common grouses during the United Progressive Alliance (UPA) days was governing at the Centre was the near absence of Ministers and leaders in party offices.

At party workers’ meetings, the loudest cheer always went up when central leaders underscored the need for making themselves available to Karyakartas. Back in 2005, Sonia Gandhi suggested Ministers take time off during official travels to states and spend time at party offices. The BJP on the other hand has a roster for Union Ministers to be present at party headquarters regularly.

The Opposition leaders especially the Congress have shown little enthusiasm to pit its leaders to counter the BJP attacks on the ground. Beyond the ritual skirmishes on television debates in studios and joining issues on social media sites, the absence of senior Congress leaders’ presence during a public protest is too conspicuous.

Part of this listlessness can be attributed to the state of drift the party is in since the resignation of Rahul Gandhi as its president two years ago. Uncertainties following the COVID-19 pandemic further accentuated the lack of comprehensive decision making in the party. Sporadic bursts in announcing appointments affecting a change of guard, adds to a public perception of a serious internal struggle.

What are the challenges that the Opposition needs to overcome to make a combined bid against the BJP?

One is to convince workers/cadres to work together; two, willingness to cede ground to another party in the opposition in a state or states according to respective strengths; three, sort out the issue of leadership both in the Congress and the Opposition; and finally, come up with a national alternate vision.

The imperative of staying together and rising above the priorities of different parties would be tested during the plan to organise public protests together all over the country during the last 10 days of next month. The leaders realise that working together would first require a spirit of accommodation and jointness among its workers.

Also Read | Stirrings in the opposition camp, a minor storm in the teacup

There are some practical problems that do not require any great imagination. For instance, how will the workers of the Trinamool Congress (TMC) and the Left parties work together in West Bengal?

Similarly, is it possible for the cadres of Congress-led United Democratic Front and the Communist Party of India-Marxist (CPM)-led Left Democratic Front to stage a joint demonstration or organise a strike in the state?

The causes articulated in the joint statement are common yet it would require an extremely imaginative approach in demonstrating unity against the BJP government and its policies. The easiest way, for the time being, is to hold such protests separately and hope people hear a rhythm in such an exercise.

Way back in 1996, when the Congress was to take a call on supporting the United Front government at the Centre, most MPs confronted then-president P V Narasimha Rao, how can the party face people after having contested against the parties now in the coalition.

Eventually, the idea of keeping the BJP out of the governance structure on ideological grounds overrode all other compulsions.

Between now and 2024, the parties in opposition would have the opportunity to test their wares and jointness during assembly polls. These elections should enable leadership to fine-tune strategy and come up with a cogent tactical plan. An ideal direct contest taking on the BJP may be elusive.

The suggestion of TMC president and West Bengal Chief Minister Mamta Banerjee to put aside the issue of leadership for a later date may be politically pragmatic but given the increasing tendency of personality-driven politics dominating elections, this approach is not without a serious drawback.

A national alternate vision idea mooted by Rahul Gandhi is one approach to convince people why the combination is best suited in present conditions.

Drawing up a roadmap for the country that is different from the experiences during the BJP-led government is easier than convincing the electorate about its efficacy. Nonetheless, a majority of the opposition parties appear determined to find a path.

—The author is a senior journalist and has earlier worked with The Hindu and The Tribune. The views expressed are personal. Click to read his other columns

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Are UPA-era oil bonds the reason for high excise duty on petrol, diesel?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Finance minister Nirmala Sitharaman recently expressed her inability to cut excise on petrol and diesel citing the burden of Rs 1.34 lakh crore of oil bonds inherited from the United Progressive Alliance (UPA) dispensation. CNBC-TV18 has attempted to analyse this claim in the context of certain data.

Revenue bounty from petrol, diesel

The revenues from duties on petrol and diesel have more than doubled since FY14 from Rs 1.35 lakh crore to Rs 3.89 lakh crore in FY21, primarily due to a hike in excise duty by the National Democratic Alliance (NDA) government from time to time, including a steep one last year. The Narendra Modi-led government was able to raise taxes on fuel products because crude oil price was low when it had come to power.

Rs 1.44 lakh crore mopped up additionally in FY21

In fact, the government surpassed its own revised estimates of the 2020-21 Budget which pegged collections at Rs 3.46 lakh crore against the budget estimate of Rs 2.45 lakh crore. To sum up, against the original budget estimate, the government raked in an additional Rs 1.44 lakh crore in a single financial year. And this excludes cess revenue from crude oil. Against this backdrop, the government has made a paltry repayment of Rs 3,000 crore on oil bonds.

 Over Rs 50,000 crore of interest on oil bonds already paid till 2013-14

To put the matter in perspective, the UPA government in 2009-10 made an interest payment of Rs 10,000 crore on account of oil bonds. Till 2013-2014, they had accounted for over Rs 50,000 crore of interest payments against oil bonds. Hence, for the government to now claim that they have been paying Rs 10,000 crore annual interest since 2014-15 total to Rs 70,000 crore till 2020-21 doesn’t hold water, especially since the government has made a killing from taxes on petroleum products.

States’ share in fuel excise reduced to Rs 20,000 crore

The beauty of these revenues is that the Centre is keeping maximum revenues to itself by way of road cess and additional duties which are not sharable with states. For instance, road cess mop up alone was Rs 2.25 lakh crore against the original budget aim of Rs 1.25 lakh crore in FY21. While additional excise collections were pegged at Rs 74,000 crore. Only basic excise duties are sharable with states and their share was approximately a mere Rs 20,000 crore. The rest was retained by the Centre.

Even this year while the fuel excise target is lower at Rs 3.19 lakh crore, the government is still aiming at Rs 2 lakh crore from road cess alone which is not sharable with the states. While states’ share from the basic excise revenue is again estimated at Rs 20,500 crore according to the FY22 Budget.

Crude at $99, fuel excise mop up less than half that in FY14

This was not the case in 2013-2014. Despite crude oil hovering at $99 a barrel, the government at that time budgeted Rs 1.60 lakh crore from excise duties, out of which, approximately Rs 40,000 crore was shareable with states. Today, when crude oil is hovering around $65-68 a barrel, the government has raked in Rs 3.89 lakh crore and the states are getting a minuscule share of that.

GDP, Budget size has doubled since FY14

Plus, the size of the GDP for 2013-2014 was estimated at Rs 113  lakh crores, a far cry from today’s Rs 228 lakh crore, despite the disruption caused by COVID-19. Similarly, the budget size in 2013-2014 was estimated at Rs 14 lakh crore, while for this fiscal it is estimated at Rs 34.83 lakh crores, more than double that.

On a budget size of close to Rs 35 lakh crore, oil bonds worth Rs 1.30 lakh crores are not even 4 percent as a proportion, while in 2013-2014, 9.2 percent of the expenditure budget was eaten up by the bonds.  More importantly, by the time major tranches of the bonds come up for repayment in FY24 to FY26, the budget size and the size of the economy will be much larger.

Rs 55,000 crore of interest payment on recap bonds in 3 years; GST cess extended for repayment of market loans

If oil bond payments are a burden, then what about the almost Rs 55,000 crore of interest the government is paying till FY22 for recapitalisation bonds of over Rs 3 lakh crore given to public sector banks, in lieu of cash infusion.

What about the Rs 1.10 lakh crore of GST compensation given to states via market loans with bond maturities of 3-5 year years? The GST cess stands extended just for the repayment of these market loans, even if it is not impacting the Centre’s balance sheet directly.

Clearly, the government’s argument does not hold water and is also too late in the day.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wilful defaulters beneficiaries of ‘phone banking’ under UPA regime: FM Sitharaman

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Hitting out at the Congress party, Finance Minister Nirmala Sitharaman has said that wilful defaulters were beneficiaries of ‘phone banking’ under the UPA regime and the Modi government is chasing them to recover the dues.

She was responding to the opposition’s allegations of loan waivers worth Rs 68,607 crore in the form of write-offs of top 50 wilful defaulters during the first half of the financial year ended March 2020.

The Finance Minister, through a series of tweets posted late night on Tuesday, said that the Congress has attempted to mislead people, and former Congress President Rahul Gandhi should introspect why his party fails to play a constructive role in cleaning up the system.

“Shri @RahulGandhi MP (LS) and Shri @rssurjewala spokesperson of @INCIndia have attempted to mislead people in a brazen manner. Typical to @INCIndia, they resort to sensationalising facts by taking them out of context. In the following tweets wish to respond to the issues raised.

“@INCIndia and Shri.@RahulGandhi should introspect why they fail to play a constructive role in cleaning up the system. Neither while in power, nor while in the opposition has the @INCIndia shown any commitment or inclination to stop corruption & cronyism,” she said.

Highlighting that between 2009-10 and 2013-14, scheduled commercial banks had written off Rs 1,45,226 crore, she quipped, Wished Gandhi consulted former Prime Minister Manmohan Singh on what this writing-off was about .

She also referred to media reports quoting former Reserve Bank of India (RBI) governor Raghuram Rajan as having said that a large number of bad loans originated in the period 2006-2008 and “too many loans were made to well-connected promoters who have a history of defaulting on their loans”.

“Those defaulters who do not repay despite having capacity to pay, divert or siphon-off funds, or dispose of secured assets without bank’s permission are categorised as wilful defaulters. They are those well connected promoters who benefitted from UPA’s phone banking’,” she added.

In another tweet she said, “Earlier, on 18.11.2019, in the Lok Sabha for an unstarred Question no:52, a list of Borrowers flagged as wilful defaulter by Public Sector Banks under CRILIC (Central Repository of Information on Large Credits) reporting as on 30.09.2019 (For borrowers with exposure of Rs. 5 crore and above, Global operations) was provided.”

Bank-wise details of aggregate funded amount outstanding and amount technically/prudentially written off pertaining to top 50 wilful defaulters was provided as an annex to the answer to Lok Sabha starred question 305 of Gandhi on March 16, 2020.

However, Congress leader Rahul Gandhi on Tuesday said he had asked the government in Parliament the names of the top 50 bank loan defaulters, but the Finance Minister did not answer his question.

“Now the RBI has given the names of Nirav Modi, Mehul Choksi and many of BJP’s ”friends” in the list of bank frauds. That is why this truth was held back from Parliament,” Gandhi said in a tweet in Hindi.

The Congress alleged the government waived loans worth Rs 6.66 lakh crore since 2014 till September 2019.

Sitharaman said this is an attempt of Congress leaders to mislead on wilful defaulters, bad loans and write-offs.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Government raises Rs 2.79 lakh crore through divestment in last 5 years

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government raised Rs 2,79,622 crore from the disinvestment of public sector undertakings (PSUs) during 2014-19 compared to Rs 1,07,833 crore during the 10-year UPA rule from 2004-14, union minister Anurag Singh Thakur said on Tuesday.

Speaking during the Question Hour in the Rajya Sabha, the minister of state for finance said, “In five years, we raised double the amount. This was done in an average 21 transactions each year, while it was four between 2004-2014.”

During 2014-19, a total amount of Rs 2,79,622 crore was realised from the disinvestment transaction using various modes, he said.

“If you compared it with 2004-14, which was 10 years period, through 40 transactions, only Rs 1,07,833 crore could be raised,” Thakur said in the Upper House. For the current year, the target is to raise Rs 1.05 lakh crore. “We are trying our best to achieve this.”

The minister said that the government follows a policy of disinvestment through a minority stake sale and strategic disinvestment. So far, the government has given ‘in-principal’ approval for strategic disinvestment of 33 central public sector undertakings (CPSEs).

Think-tank Niti Aayog has been mandated to identify such PSUs based on the criteria of national security, sovereign functions at arm’s length and market imperfections and public purpose.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Sovereign bond: To issue or not to

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian government has decided to issue a sovereign bond that is it has decided to borrow in foreign currency. This overturns a decades-old self-imposed constraint. Before we examine the merits of borrowing abroad now, let us examine why all the Reserve Bank of India (RBI) governors and all previous governments United Progressive Alliance (UPA) and National Democratic Alliance (NDA) refrained from this path.

Until the early nineties, India was a rather closed economy and not anywhere near investment grade, so the question didn’t arise. But we were witness to the long and deep trouble that Latin American countries went through since mid-eighties because of their excessive foreign borrowing and it was a situation India was determined never to get in.

Our approach to allowing foreign funds to buy Indian debt was also influenced by the 1991 balance of payments crisis when we ran short of dollars to pay an International Monetary Fund (IMF) debt. The resultant sharp devaluation of the currency and the IMF’s conditions for a new loan hurt the economy and our pride. Hence despite the overall liberalisation of the economy that was ushered in since 1991, neither the sovereign borrowed dollars, nor did it allow Indian corporates to raise foreign debt without explicit RBI permission.

This decision was reinforced by the severe crisis the Asian economies – Thailand, Malaysia, Indonesia, Philippines and Korea went through in 1997. They were victims of excessive debt exposure of their sovereign and their corporates to foreign funds.

The temptation for a sovereign borrowing emerged in India only in the early 2000s. In 2002 to be precise. Indian software companies were earning dollars hand over fist, crude was below $20 and the rupee was appreciating. Finance ministers Yashwant Sinha and later Jaswant Singh asked the RBI for advice. A working group of the RBI went into the issue, and in concert with the then Indian executive director at the IMF, advised against a sovereign bond. The government dropped the idea.

During tough times like the Asian crisis and the US sanctions after our Pokhran nuclear test, during comfortable foreign exchange flows from 2001 to 2008, through the tremors of Lehman and the later taper tantrum, RBI governors from C Rangarajan to Bimal Jalan to Y V Reddy to D Subbarao to Raghuram Rajan advised against foreign currency borrowing and the finance ministers of varied parties accepted this recommendation.

But now the government appears to believe things have changed. The argument appears to be that India now has an FRBM (Fiscal Responsibility & Budget Management) Act and inflation targeting central bank. India’s macros now have sustainably improved and hence the time has come to avail of cheaper loans in foreign currencies. Let us consider all these arguments:

Firstly, is the loan really cheap? Today the US 10-year (a AAA paper) trades at around 2 percent. India’s BBB- paper can cost around 3 percent. So it is optically cheaper. But this argument is incorrect because if the dollars are fully hedged, the cost will be higher than borrowing from foreign funds in rupees. If the loan is left unhedged, the final repayment, taking into account the rupee’s historical depreciation rate, may be at least if not more expensive than a rupee loan. The proponents argue that historically India’s inflation was 7.5 percent, but in the last 3 years (since we adopted an inflation targeting monetary policy) inflation has averaged 3.5 percent. Hence, assuming the inflation rate remains at 3.5 percent the rate of depreciation of the rupee will also be much lower than the last 10 years or last 60 years.

Now, it seems too premature to make this assumption. Pitting a 3 year average against a 60-year performance seems total premature. Already, Wholesale Price Index (WPI) food inflation is running at 7 percent and prudence will demand that we at least wait for a decade to see if inflation remains sustainably lower. If inflation indeed edges up, currency depreciation will inevitably follow and a foreign loan could get expensive by the time we repay.

As for India’s fiscal deficit, even at the stated 6.5 percent, it is higher than peer group countries rated BBB-. The goal of bringing down central deficit to 3 percent has been pushed back by both UPA and NDA governments repeatedly, or the numbers have been fudged. Indeed if the extra-budgetary borrowing of states and centre is added, India’s current deficit may be 7.5 percent of gross domestic product (GDP).

As if this is not enough the government lately is making it a habit of meeting a large part of its deficit from an ever-increasing RBI dividend which actually amounts to monetisation of the deficit i.e. the government spends more than it earns; RBI makes up the difference by printing notes.

Why are these deficit numbers so important? They are relevant because if an Indian sovereign bond is listed, any signs of higher inflation, higher deficit or higher monetisation will lead to bondholders dumping Indian bonds; Indian bond yields will rise and will consequently push up domestic yields.

Sometimes vulnerability may come simply because of global instability such as a middle-eastern war, a rise in crude prices or a general risk aversion towards emerging market currencies because of a default by one or some emerging economies as happened during the taper tantrum. At such times the impact on domestic borrowers right from the home loan borrower to the SMEs to the corporates to the state and central governments can be painful. Even without a sovereign bond, Indian yields are impacted by the global movement in yields but the impact is much less.

The more pertinent reason for the government to go for a sovereign bond now appears to be to prevent crowding out private borrowers. The argument appears to be if a part of the borrowing is taken to new borrowers outside the country, corporates within can borrow cheap and kick start growth. While this intent is noble, this may still be achieved without exposing India to the vulnerabilities that come with a sovereign bond. The government is probably impatient because the rate cuts from RBI have been slow and their transmission even slower. But things are changing. The RBI has already cut rates three times this year and with growth flagging, is poised to cut more.

The transmission was tough because banks’ credit growth shot up due to the non-banking financial companies (NBFCs) while deposits were climbing slowly. But the credit-deposit gap will narrow as the NBFC crisis ebbs, and as credit demand falls due to slow growth. Cuts in bank deposit and loan rates will surely follow.

The other big disadvantage, if foreign funds are allowed to hold more Indian bonds, is to Indian banks. While foreign funds can dump Indian government bonds when they wish, Indian banks have to mandatorily hold 19 percent of their deposits as government bonds. So every time government bonds are dumped by foreign funds Indian banks bond portfolio will suffer losses. The RBI has hence long argued that greater foreign ownership of Indian government bonds must be dovetailed to bringing down the mandatory SLR ratio.

Also, India’s current account deficit at 2.1 percent is not exactly low compared to peer emerging markets. And India’s reserves accretion is not because we have a compelling basket of exports (like China or the Middle East does) but because of capital flows. Capital flows are typically fickle and by definition prone to profit-taking. Indeed at the current juncture, a sovereign borrowing may merely result in reserve accretion with RBI being dumped with the task of managing the additional currency risk.

Lastly and most importantly, the global financial markets are far more uncertain today with longstanding trading arrangements getting challenged and growth models disrupted. To go for foreign currency borrowing at this stage may prove costly.

However, since the issue has been raised, it may be a good idea to debate it nationally and have a committee of respected economists and policymakers examine it. Like the Tarapore Committee on capital account convertibility, this committee can set macro benchmarks that we need to achieve. It can dovetail the amount of foreign borrowing (in rupees and foreign currencies) to certain macro indicators like current account deficit, fiscal deficit and inflation.  Such a committee may also examine if it is wiser to open the window for foreign portfolio investors (FPIs) buying rupee-denominated government bonds rather than issue a foreign currency bond.

India has suffered for too long from high deficits and inflation for us to conclude these problems are behind us. It is best to tread with caution.

Also read: Ananth Narayan of SPJIM says Indian sovereign bond issue would look attractive now

Editor’s Take: Latha Venkatesh explains pros and cons of government borrowing overseas

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The Enforcement Directorate (ED) has summoned senior NCP leader and former aviation minister Praful Patel next week as part of its money laundering probe related to alleged losses suffered by national carrier Air India in a multi-crore aviation scam during the UPA-era, officials said on Saturday. They said Patel, a Member of Rajya Sabha, has been asked to appear before the investigating officer of the case on June 6.

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