Month: June 2016

UK leaves EU

On 23/6/2016 UK held referendum on Brexit. On 24/6/2016 vote counting was over. UK had voted to leave EU by 51.89% to 48.11% votes.
Brexit issue had divided parties. Conservative Party was divided. Prime Minister David Cameron and Chancellor of the Exchequer were in Remain Camp. Former London Mayor Boris Johnson and Justice Secretary Michael Gove were in Leave Camp. Labour Party’s leader Jeremy Corbyn did not show enthusiasm for Remain Camp. London Mayor Sadiq Khan was in Remain Camp. David Cameron and Sadiq Khan appeared together to ask voters to choose Remain. Some Labour MPs favoured Leave.
Bank of England Governor Mark Carney favoured Remain. Some questioned his propriety.
Former Prime Ministers John Major, Anthony Blair, James Gordon Brown campaigned for Remain.
Many foreigners joined Brexit debate. US President Barack Obama, French President Francois Hollande, German Chancellor Angela Merkel, IMF President Christine Lagarde wanted UK to remain in EU.
Currency dealer George Soros and many industrialists favoured Remain.
During the campaign Labour MP Helen Joanne Cox was murdered. Conservative MP Sayeeda Warsi switched from Leave Camp to Remain Camp.
UKIP favoured leave. When it was clear it was victory for Brexit UKIP leader spoke.
He said: “Dare to dream he dawn is breaking on an independent United Kingdom. If the predictions are right this will be a victory for the real people, for the ordinary people, and for the decent people.”
“We fought against the multi-nationals, we fought against the big merchant banks, we fought against lies, corruption and deceit”.
“Honesty, decency and belief in nation is going to win. And we will have done it without having to fight, without a single bullet being fired.”
“We’ll have done it by damn hard work. By people like my friend Arron Banks; by people in Labour, the Conservative Party, UKIP and in no party.”
“We’ll have done it not just for ourselves, we’ll have done it for the whole of Europe.
“I hope this victory brings bring down this failed project. Let’s get rid of the flag, the anthem, Brussels and all that has gone wrong.”
“Let June 23 go down in history as our Independence Day.”
Later he said “June the 23rd needs to become a national bank holiday, and we will call it Independence Day.”
David Cameron announced he will step down during Conservative Party’s Convention in October.
Donald Trump was in Scotland to open a golf course.
“I think it’s a great thing that happened. People are angry, all over the world. People, they’re angry.”
“People want to take their country back. They want to have independence, in a sense, and you see it with Europe, all over Europe. You’re going to have more than just — in my opinion, more than what happened last night, you’re going to have, I think many other cases where they want to take their borders back. They want to take their monetary back.”
Markets crash all over the world. There was no rational explanation. There was no good reason for Sensex to crash or rupee to crash against dollar. Pound’s crash seems manipulated.

Raghuram Rajan and RBI

Raghuram Rajan not continuing as RBI Governor for second term has become international news. Many foreign channels have commented and discussed about it. BBC compared him to rock star. This has no precedent.
On 18/6/2016 Raghuram Rajan in his e-mail to RBI colleagues mentioned “While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term ends on September 4, 2016.”
Raghuram Rajan was a UPA appointee. He did not have the best of relationship with Modi Government. Raghuram Rajan spoke on issues not connected to economy or did not toe the government line. That offended many in the ruling party.
Raghuram Rajan has many admirers. They were hoping he will get a second term. Once Subramanian Swamy started to attack Raghuram Rajan there was doubt over his continuance as RBI Governor. Swamy’s attacks were on issues as well as personal.
One issue on which many blame Raghuram Rajan is interest rates. They say he kept interest rates far too high and far too long to bring down inflation. This affected investment and growth. The critics are wrong. Raghuram Rajan was right to keep interest rates high. Zero interest rate or negative interest rate has not helped any economy. Euro zone countries or Japan have not made progress by having such rates.
Inflation affects Indians as a whole. Low interest rates could have benefitted few industrialists who anyway do not repay loans. They default and go for strategic debt restructuring and corporate debt restructuring which means public money is lost. Public sector banks have lost lakhs of crores of rupees. Raghuram Rajan wanted to make the names of defaulters public. Soon attacks on him began.
Some had predicted Raghuram Rajan’s exit will result in fall in FDI. Modi Government wanted to prove them wrong. So on 20/6/2016 there was clearance for 100% FDI in defence and some other sectors and 74% FDI in Pharma. Congress called it a panic reaction.
Under Raghuram Rajan rupee which had fallen to 69 per dollar had become stable and appreciated close to 55 per dollar and then depreciated and is now around 67 per dollar.
Some are happy and some are unhappy about Raghuram Rajan’s going. BJP members are generally happy. Some economists are industrialists are unhappy. The names of defaulters to public sector banks must be made public. Those who have left the country should be declared robbers and brought back.