Sunday, June 4, 2017

Trump's Paris Accord Pullout; India's Slowing Economy; Kabul Blast; Panama JIT

Why did President Trump pull the United States out of the Paris Climate Deal? How will this impact the United States and the world? Can US still lead on matters related to energy? Will China and Europe pick up the mantle of world leadership on climate change and clean energy? Will US growing isolation cost American jobs?

Why has India's GDP growth slowed to 6.1% in Jan-March 2017 from 7.1% earlier? Is it the result of demonetization? Why has bank credit growth declined to just 5%, the slowest in 60 years? Is the growth in non-performing loans taking a toll on new lending by ailing public sector banks? How will it affect job growth in India?

Who is responsible for the massive Kabul blast that caused tragic loss of 100 lives? Did the Haqqanis do it? Why is the Afghan intelligence blaming it on Pakistan? How will the United States deal with the deteriorating situation after 16 years of war in Afghanistan? Will the Taliban accept talking with the Afghan and US representatives?

Does PMLN Senator Nihal Hashmi's scathing attack on judiciary and bureaucracy reflect the inner thinking within the Sharif family and the PMLN leadership? Is it an attempt to intimidate the judges and the bureaucrats involved investigating corruption allegations against Prime Minister Nawaz Sharif and his family members? Are they having a hard time dealing with accountability as never seen before by a ruling party in Pakistan?

Viewpoint From Overseas host Faraz Darvesh discusses these questions with Ali H. Cemendtaur and Riaz Haq (

Related Links:

Haq's Musings

Trump's Policies

Pakistan's Response to Climate Change

Is Modi Fudging Indian GDP Figures? 

India's Demonetization Disaster

Gen Petraeus on Pakistan's Support of Haqqanis

Panama Leaks Corruption Scandal

Talk4Pak Youtube Channel


Ravi said...

I have been reading about the near demise of the Indian economy on Mr RH's blog for over many many years! Here is a different perspective in per capita terms, $ppp, in 1985, 1995, 2005 and 2017est. IMF:

1380 2300 3503 5375

830 1522 2907 7153

Riaz Haq said...

Ravi: "I have been reading about the near demise of the Indian economy on Mr RH's blog for over many many years! Here is a different perspective in per capita terms, $ppp, in 1985, 1995, 2005 and 2017est. IMF:"

I never said India's economy is "near demise". I did and do question the veracity of Indian government GDP data as do many economists, including Indian economists such as the ex RBI chief Raghu Rajan.

Pakistan's GDP calculated from consumption data in PSLM is significantly higher than the government estimates based on production data. The reverse is true of Indian GDP.

M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE), explored several published different approaches for sizing Pakistan's underground economy and settled on a combination of PSLM (Pakistan Social and Living Standards Measurement) consumption data and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08".

Prominent Indian economists Abhijit V Banerjee, Pranab Bardhan, Rohini Somanathan and TN Srinivasan teaching at MIT, UC Berkeley, Yale University and Delhi School of Economics believe that India's GDP estimate based on household survey (National Sampling Service or NSS) data is about half of what the Indian government officially reports as India's GDP.

Here's a quote from French economist Thomas Piketty's book "Capital in the Twenty-First Century" explaining his skepticism of production-based official GDP figures of India and China:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data."

Ravi said...

Okay I will oblige that GDP figures have always been contested. Better to look at hard things like Export Growth. India vs Pakistan $$Billion 1985, 1995, 2005 and 2015 World Bank Data

3.6 8.43 19.763 29.171

13.4 40.0 160.0 443.16

In 1985 per capita exports of India was only $17.14 whereas Pakistan was at $39.06.
In 2015 per capita exports grew 50x for India to $354.40 whereas Pakistan only grew 3.95x to $154.34

Riaz Haq said...

Ravi: "Better to look at hard things like Export Growth. "

A 2005 study by US General Accounting Office (GAO) found that Indian government's figures for software and technology exports to the United States were 20 times higher than the US figures for import of the same from India.

In theory, India follows what is known as BPM 6 (MSITS) reporting method for software and information-enabled technology services (ITES) which counts sales to all multinationals, earning of overseas offices, salaries of non-immigrant overseas workers as India's exports. In practice, India violates it. BPM 6 allows the salaries of first year of migrant workers to be included in a country's service exports. India continuously and cumulatively adds all the earnings of its migrants to US in its software exports.

Riaz Haq said...

Global Growth Set to Strengthen to 2.7 percent as Outlook Brightens
June 4, 2017

South Asia. Regional growth is projected to remain
strong, at 6.8 percent in 2017. India is recovering from
the temporary adverse effects of the end-2016
withdrawal of large-denomination currency notes.
Elsewhere in the region, growth in Pakistan is
accelerating this year, largely driven by robust domestic
demand and improved foreign direct investment, while
activity in Bangladesh is moderating, reflecting a
pullback in domestic demand and in industrial
production. Regional growth is expected to firm in
2018-19, reaching an average of 7.2 percent, supported
by robust domestic demand, an uptick in exports, and
strong foreign direct investment. The regional outlook
has been slightly revised down from January, reflecting
a more protracted recovery in private investment in
India than previously expected. Risks to the outlook are
tilted to the downside and include reforms setbacks,
geopolitical tensions, and policy uncertainty.

Regional output expanded by an estimated 6.7
percent in 2016, despite temporary disruptions
associated with the November withdrawal and
replacement of large-denomination currency notes
in India, the region’s largest economy (Table
2.5.1). In general, South Asian economies
benefitted from an improvement in exports, low
oil prices, infrastructure spending, and supportive
macroeconomic policies last year. In India, activity
was underpinned by favorable monsoon rains that
supported agriculture and rural consumption, an
increase in infrastructure spending, and robust
government consumption (World Bank 2017l). In
Pakistan, agricultural output rebounded following
the end of a drought, while the successful
completion of an IMF-supported program
enhanced macroeconomic conditions and foreign
direct investment (FDI). Nepal’s economy
suffered from lingering effects of the 2015
earthquake and trade disruptions with India
(World Bank 2017m). However, in some
countries, activity in 2016 was set back by a sharp
decline in remittances inflows (e.g., Bangladesh;
World Bank 2016g), inclement weather
conditions that reduced agricultural output (e.g.,
Sri Lanka), and security challenges (e.g.,

A pickup in regional growth is underway in 2017.
In India, recent data indicate a rebound this year,
with the easing of cash shortages and rising
exports (World Bank 2017l). An increase in
government spending in India, including on
capital formation, has partially offset soft private
investment. While manufacturing Purchasing
Managers’ Indexes have generally picked up,
industrial production has been mixed (Figure
2.5.1). In Pakistan, favorable weather and
increased cotton prices are supporting agricultural
production, and the China-Pakistan Economic
Corridor infrastructure project, as well as a stable
macroeconomic environment, is contributing to
an increase in private investment.

Regional growth is
forecast to increase to 6.8 percent in 2017 and to
strengthen to an average of 7.2 percent in 2018-
19, reflecting a solid expansion of domestic
demand and exports (Figure 2.5.2). Excluding
India, regional growth will remain broadly stable
at an average of 5.8 percent in 2017-19, as easing
growth in Bangladesh and Nepal offset gains in
Bhutan, Pakistan, and Sri Lanka.

A number of downside risks continue to cloud the
outlook. Setbacks to the assumed pace of
structural reform would impede the unlocking of
supply constraints, dampen productivity growth,
and hold up integration into global value chains.
This would hurt the business environment,
reducing investment and FDI inflows to the
region (IMF 2017d, 2017e). Security concerns in
some countries (e.g., Afghanistan, Pakistan) could
also hold back investment and business

Riaz Haq said...

5 killed by 'disgruntled' ex-employee in #Orlando #florida #workplace #shooting . #terrorism?

“We have no indication that this subject is a participant in any type of terror organization,” Demings said during the news conference. “What this is at this point is likely a workplace violence incident.”

Riaz Haq said...

Forget GDP, worry about the financial state of our states

June 4, 2017, 12:02 AM IST Nalin Mehta in Academic Interest | Economy, India | TOI

While all attention has been focused on Modi sarkar, many of our states have been borrowing money like there is no tomorrow. Reserve Bank of India (RBI) recently reported that the debt-to-state GDP ratio of as many as 17 Indian states increased in the past year. For all states taken together, this ratio hit an alarming 3.6% in 2015-16 (breaching the mandated 3% ceiling under fiscal prudence rules) for the first time in 10 years. As RBI put it, “The consolidated finances of states has deteriorated in recent years…information on 25 states indicates that improvement in fiscal metrics budgeted by states for 2016-17 may not materialise.”
This matters because it is state governments that really control most things that touch us directly — from land, electricity and water to schools, hospitals and state highways — and when foreign investors see India they don’t just see the central government but the combined health of the Centre and the states.
So, which states have a real problem with managing their money? Uttar Pradesh is a big challenge for newly minted CM Yogi Adityanath, with its gross fiscal deficit to gross state domestic product ratio in 2015-16 going up to 5.6% (up from 3.1% the previous year). For Rajasthan, this ratio is a whopping 10% (up from 3.1%), Haryana 6.3 %(up from 2.9%), Bihar 6.9% (up from 3%), Madhya Pradesh 3.9% (up from 2.4%) and Goa 6.8% (up from 2.3%).
Why does this matter to anyone other than accountants? Crudely put, the more a state borrows, the more it must pay back each year with interest — somewhat like your annual house EMIs — leaving lesser money to spend on development spending. This partly explains why 17 major states in the current financial year, according to a study quoted in TOI this week, have budgeted for a 10.8% rise in spending (compared to 19% last year) making it the slowest pace of increase in 13 years.

Ravi Krishna said...

MUBARAK HO MUBARAK HO . London attacker is Paki

After a brief period of lull, Pakis are back to doing what they do best,

Riaz Haq said...

RK: "MUBARAK HO MUBARAK HO . London attacker is Paki"

In London, it's Pakistani Muslim Mayor Sadiq Khan vs the bad guys some of whom are British Muslims of Pakistani origin. No funeral prayer for the dead terrorists sends a strong message that will hopefully dissuade at least some of the would-be terrorists.

Riaz Haq said...

#California Signs #ClimateChange Agreement With #China after #Trump's #ParisAccord pullout via @IFLScience:

The rebellion is in full swing, and it seems the Paris agreement was the catalyst.

First came the Climate Alliance, a bipartisan group of Governors determined to uphold the pact despite the actions of the Executive Branch. Then came “We Are Still In,” a coalition of US states, businesses, and cities – representing one-third of the American population – that told the UN that they are still abiding by Paris.

Now, Governor Jerry Brown of California, one of the co-chairs of the Climate Alliance, has taken this one shocking step further. During his current tour of China, and shortly before meeting with President Xi Jinping, he signed an agreement with China that would see the rising superpower and the Golden State work together on cutting their greenhouse gas (GHG) emissions over time.

From renewable energy technologies to zero-emission vehicles, from low carbon infrastructures to electricity efficiency savings, both China and California will work closely together. A working group of top-level officials from both sides will continually plot ways to cooperate on climate measures and to zero in on initiatives that will help both countries cut their carbon footprints.

China has already shown over the last couple of years that it is serious when it comes to climate change mitigation. Although far from perfect, the world’s most prolific GHG emitter is investing heavily in wind, solar, and nuclear power and its coal production has reached a plateau. Ambitious, enormous clean energy projects by state-owned corporations are underway across the globe.

In this respect, California – a progressive pioneer in clean energy since the 1980s, and home to nearly 40 million people, more than most countries – is China’s natural ally on the subject. The two may disagree about many other things, but on their frustration with the President, and their work on climate change, they have mutual goals.

Upon signing the agreement early today with Wan Gang, the Chinese minister for science and technology, Brown reminded the world that the power of states should not be underestimated.

“California is the leading economic state in America and we are also the pioneering state on clean technology, cap and trade, electric vehicles and batteries, but we can’t do it alone,” Brown said before a Chinese delegation.

Secretary of Energy Rick Perry was also at the meeting in Beijing. Despite quietly hoping that the President would stay in the Paris agreement, he’s happily going along with Trump’s decision to withdraw. This surprise announcement by Governor Brown must have come as quite a shock to him.

This is nothing short of a powerful rebuke to Trump, and Brown knows it. It’s increasingly looking like it’s not America alone on the world stage – it’s the President.

Anonymous said...

"Ravi Krishna said...
MUBARAK HO MUBARAK HO . London attacker is Paki

After a brief period of lull, Pakis are back to doing what they do best,"

But nothing like 1984, 1992 and 2006, killing your own countrymen. BTW, are you guys due for another genocide?

G. Ali

Riaz Haq said...

Can #Pakistan’s Banned Organizations Rejoin the Mainstream? #JuD #JeM #ASWJ @Diplomat_APAC

“Though Jamat-ud-Dawa (JuD) is not listed as a political organization but it is a political entity, we want to register JuD as a political party. We played a positive role in the politics and we want to continue it,” said Hafiz Masood in Islamabad on March 27 this year.

Masood, brother of JuD chief Hafiz Muhammad Saeed, was speaking in a closed-door session on “Rehabilitation and Reintegration of Different Brands of Militants.” The discussion, organized by the think tank Pakistan Institute of Peace Studies (PIPS), centered on the reintegration of banned outfits like Jamat-ud-Dawa (JuD), Jaish-e-Muhammad (JeM), and Ahle-Sunnat Wal Jamaat (ASWJ).

Later, during a press briefing on April 26, the spokesman of the Pakistan Army, Major General Asif Ghafour, released a confessional video statement from Ehsanullah Ehsan, the former spokesman of the banned Jamat-ul-Ahrar (JuA), a splinter group of Tehreek-e-Taliban Pakistan (TTP).

In April last year, he handed over two deradicalization plans to Nawaz Sharif, prime minister of Pakistan. The first proposal was to be implemented through the Ministry of Interior (MoI) and the other was under the National Counter Terrorism Authority (NACTA). There was a role assigned to at least six different government departments in the proposed plan.

The proposal was to segregate different kinds of extremist on the basis of their history and nature of involvement in militancy. Some individuals are associated with the welfare work of banned outfits and some are part of the propaganda arm, while others actually take up arms against the state. Therefore, each individual would be reviewed according to his level of involvement in militant activities.

Pakistan is not the only country trying to develop a mechanism to rehabilitate militants. Deradicalization plans for repentant militants already exist in the Muslim world. Saudi Arabia, the United Arab Emirates, Bangladesh, Malaysia, Indonesia, Yemen, Morocco, and Jordan adopted such plans much earlier. Pakistan has another significant example: neighboring Afghanistan, where Hezb-i-Islami has announced it will shun violence and join mainstream politics in the country. The United Nations lifted its ban on the Hezb-i-Islami chief, Gulbuddin Hekmatyar, in February this year. The historic move was a result of a deal that was brokered between the Afghan government and Hekmatyar.

Pakistan is also running at least two deredicalization centers – Sabaon and Mashal – in the Sawat area of Khyber Pakhtunkhwa province.

Explaining the rationale of new proposed deredicalization program, retired Lt. Gen. Amjad Shoaib said that in January 2004, under orders from General (retd.) and then-President Pervez Musharraf, camps of banned outfits were dismantled and the militants were flushed out. It was a big blunder; for two years these men had been motivated and trained to wage jihad and then suddenly they were asked to vacate the area. “Those elements perceived that Pakistan betrayed the cause of Kashmir and [that’s when] Punjabi Taliban was formed. At that time nobody thought of starting a deradicalization program,” Shoaib explained.

Shuja Nawaz, a fellow at the Washington, DC-based South Asia Center of the Atlantic Council does not see rapid movement toward these goals given the lack of careful consideration of the deradicalization and de-weaponizing of Pakistani society. He believes that ties between these shadowy jihadi groups and the political system prevent firm actions. Nawaz, who author of the book Crossed Swords: Pakistan, Its Army, and the Wars Within, says, “Mainstreaming can only occur when wider actions alter the school systems and curricula and to remove the vestiges of Ziaist [referring to General Zia-ul-Haq] policies and systems in both the civil and military are effected. That needs political gumption, a rare commodity in Pakistan today.”

Riaz Haq said...

#India and the Visible Hand of the Market. #Modi #Demonetization #Deflation #Onion #Potato #BlackMoney

Nearly eight months later (after demonetization), a lot of data is now available to help us assess what demonetization has actually wrought. Here it is, in a word: Demonetization failed to do what it was supposed to do, and although the immediate disruption it caused was less severe than feared at first, the policy’s impact is turning out to be more protracted than initially expected.

Very little black money has been caught. The truly corrupt hold their black money not as money at all, but as real estate and bank balances abroad. The government had authorized people to trade in up to 4,000 rupees in the canceled notes, so some parceled their 500- and 1,000-rupee bills into small bundles and got multiple agents (“money mules”) to change them, no questions asked. The government’s freshly minted 2,000-rupee notes promptly became the new stash currency of choice.

In the first weeks, even months, following demonetization, there was visible chaos. Soviet-era-style queues snaked in front of banks and A.T.M.s. The informal sector — mostly small traders, farmers and small unregistered businesses, which often don’t have bank accounts — reeled from cash shortages. But the immediate damage caused, though large, was not as large as some of us had feared. G.D.P. growth in the last quarter of 2016 was 7 percent and manufacturing activity continued to grow.

On the other hand, there may be greater long-term side effects than expected.
The problems appeared unexpectedly, when agricultural products arrived on the market. In January, with cash shortages in full swing, demand plunged and food prices collapsed. By February, potato prices in Uttar Pradesh were just over half of what they had been during most of 2016 (at around 350 rupees per quintal, instead of over 600 rupees per quintal). Tomato prices were less than one-third. Onion prices in May were half of what they had been a year before. The cost of onions in India is notoriously volatile — and often influenced by politics and elections — but the likeliest culprit for this year’s drop was demonetization.


An economy is a complex machine, and there is no way to be absolutely certain that the cause of all this is demonetization. But there is a telltale sign: Much of the slowdown originated in the financial sector. Rural loans increased by only 2.5 percent between October 2016 and April 2017, compared with 12.9 percent a year before. The rate of growth in overall bank credit declined.

The growth in industrial output in April was a paltry 3.1 percent, down from 6.5 percent the previous April. In the first quarter of 2017, the construction sector actually shrank, by 3.7 percent, over the previous quarter.

All this augurs poorly for the months to come: As the agriculture sector slows down in response to low crop prices and the credit shortage begins to bite, overall growth will likely fall further. The state-engineered shock of demonetization will continue to course through the economy.

Demonetization did boost the use of digital money, which is more efficient than paper money. But the government didn’t need to put 86 percent of the currency out of circulation to achieve that. Demonetization was too coarse an approach, and it accomplished too little while causing too much collateral damage.