The Contours Of Recovery & The Asian Century

Painting above by Wassily Kandinsky

The Contours Of Recovery & The Asian Century


Prime Minister Manmohan Singh and Premier Wen Jiabao reportedly had a very pleasant meeting on the sidelines of the 15th Asean Summit in Thailand.

They talked of the need to promote greater functional cooperation and not about
much publicised and thorny cross-border issues. There is already some economic cooperation and convergence of views on climate change, but clearly nothing near a true alliance or partnership.

The two leaders dutifully agreed that India-China cooperation: “Is in the interest of the region and the whole world”. They also reiterated that: “For the Asian Century to become a reality, it is important that India and China live in harmony and friendship and enjoy prosperity”.

This is indeed great news, and taken at face value, it is the right prescription for the Asian Century exactly. Its chances of succeeding beyond pleasantries however, are probably best described under the concept of détente or balance of power, much beloved of arch-hawk Henry Kissinger, Nixon’s Metternich admiring Secretary of State. With détente it becomes impossible to exploit a perceived weakness for short term gain or leverage, forcing reasonableness into all bilateral negotiations as a consequence. Unequals don’t usually make good partners.

But meanwhile, in the West, the financial system is clearly back into profits for the second quarter in a row. Unemployment, amongst those still looking for jobs, will however stay near or above the 10% mark for most of next year. This is because the return to profitability is not through the portals of manufacturing or retail servicing that employ great numbers at the lower reaches of the pyramid.

Right now, the economy is recovering because of a revival in business confidence, rebuilding itself from a stand-still and lending again. Demand for money is picking up and so is the willingness to lend it. John Maynard Keynes’ spirit is smiling.

And in the West, unlike India, where low lending rates mean rates ranging between 9% to 15% per annum, there is still a benign low interest scenario of 3% or under, without much threat of inflation apparent as yet.

And this, in a overall growth environment of not more than 2% per annum anywhere in the large economies of Western Europe, America, Japan and Australia, is probably as good as it is going to get for the coming decade.

That is, barring unforeseen spikes in the price of oil owing to disruption, unrest, terror-strike or warfare in the large oil producing regions. And provided the world does move away from its dependence on the stuff as it constantly promises to do, in order to dampen down the ever growing demand profile for petroleum and its derivatives.

But in the closing months of 2009, we can see banks, investment companies, insurance and mortgage lenders and their surviving white collar staff are finally over the hump. Threats of more bank closures and collapses are not getting the play they used to.

Something similar is happening here in India too, struggling to ratchet up from a slowed rate of GDP growth of around 5% to maybe 7% in 2010, notwithstanding an inflexible unemployment and under-employment rate amongst eligibles in the 25% region!

Here too, it is the banks and their activity that is perking up. And in India, with its perpetual pent up demand for infrastructure, the order book is filling up for capital goods.

In the US the Dow Industrial Average is again above 10,000 points. The Standard & Poor 500 is above 1,000 too. Newsweek magazine thinks it will go to 11,000 and S&P 500 above 1200 in 2010 and no back-sliding.

And the upswing will come, not so much in reflection of domestic consumption, as the expected profits earned by American companies from their international operations, particularly in India and China.

The Indian stock market too, with revived industry and foreign money pouring in, can expect a new all-time high in 2010.

The world today is indeed interconnected. America was saved from years of recession, if not depression, by a combination of massive Government stimulus spending and staunch financial confidence from China and the oil-rich Middle East. But then, saving the American economy has become tantamount to saving the international economy. And whatever goes for America goes also for the West as a collective, in a corollary sense.

India is not so important on the downside because of our anchoring in the domestic economy. And because our foreign exchange surpluses are not that grand. But it is highly interconnected on the upside as an engine for international recovery.

The same applies to China which may have been earning 30% of its GDP from exports heretofore, but may have to concentrate on its domestic growth for the foreseeable future.

China has already revived to nearly 9% GDP growth on the back of its own stimulus programmes. More will come from domestic investment into its large and impoverished rural hinterland and its shiny, modern cities alike.

The Chinese, like the Indians, are split between those who think pouring money into the countryside will be so much money down the drain and those who think its exact opposite. The countryside, argue the former, cannot benefit substantially from improved infrastructure because it has nothing to sell beyond low yield agricultural produce. The cities such as Beijing and Shanghai, on the contrary, are capable of returning substantial returns on investment.

The catch is in the fact that some 60% of the Chinese, like rural Indians, live in the countryside in more or less abject poverty. So not lifting these people up the economic ladder is asking for certain trouble.

In India, the proposition is less ambiguous because we are a democracy and all politicians are dependent on the rural vote. Besides, even amongst the 40% in the towns and cities, there are many toiling migrant villagers, whose ties to and sympathies for the countryside are very strong.

But in the bigger picture that the world is looking at, India and China are growth engines pure and simple. The Asian Century, Thy Kingdom Come, they pray. We may be grappling with infrastructure development, greater consumption needs, and priorities. And all this on a massive, unprecedented scale because there is much left to do. But to everyone else, it’s all good healthy economics that will uplift us and simultaneously come to their rescue as well.

(1,052 words)

25th October 2009
Gautam Mukherjee

Published in The Pioneer as Op-Ed Leader entitled "Towards an Asian Century" on October 28th,2009. Also simultaneously published online at www.dailypioneer.com and archived there under Columnists.

Engine Driver

Engine Driver


Thought for the day on Vikram Samvat 2066? The key to improving India’s security perception and the trimurti of its politics/economics/diplomacy is wrapped up in its treatment of the domestic market.

This is the engine of India’s growth. If the domestic market is accelerated due to robust Government policy, the knock-on effect on all our other concerns would be substantial.

It is the domestic market that makes India important to the world. Because, rather uniquely, India’s domestic growth path can be largely self-driven. It rides, from education, health and agriculture, to manufacturing industry and services, on the demand generation of our billion plus population.

India also has a wealth of indigenous raw materials, including a great deal of the world’s Thorium, that can, given a dedicated burst of further R&D, substitute for scarce Uranium in our nuclear reactors.

We don’t, alas, have 70% of the petro-carbons we need. But we do have self-sufficiency and periodic surpluses in food, and sufficient arable land mass/river/monsoon water to do very well. Given, that is, some better management by way of irrigation/dams and recharge/reforestation, to get us out of the clutches of perpetual drought/flood.

Ironically, we did not choose to be an overwhelmingly domestic-led economy. But years of Nehruvian non-alignment followed by a nationalistic self-reliance under Mrs. Indira Gandhi resulted in what we have become. But, by the same token, we did not plan on becoming the most prominent exporter of software, or the global hub for the manufacture of small cars and automotive components either!

Both consequences resulted from our multi-pronged approach to policy making in combination with shifts in global forces beyond our control. This has put us in a happy place where we need not sacrifice our exports to the domestic market.

India accounts for a negligible proportion of world trade and there is much room to grow. But here too, improving our domestic capabilities can only upgrade our exports, which account for 12% of GDP now. This might also make them less price sensitive and vulnerable to a strengthening currency. But more significantly, when the rupee strengthens, it benefits our substantial import bill.

If we concentrate on developing our domestic market which accounts for over 80% of the economy, we could trigger huge strategic gains. New facilities sprouting where none exist today will meet massive pent up demand. And improved roads, ports, airports, power generation/distribution, oil & gas exploration/development/ refining/distribution; scientific agriculture plus a slew of food processing industries; enhancement of military and nuclear oriented manufacturing capacity etc. will multiply our options manifold.

We would, by doing this aggressively, not only boost GDP with the investment involved, but ensure access, availability, ease, and the removal of bottlenecks that presently bedevil our competitiveness and rate of progress.

Twenty years like this will transform the India proposition, as it has done for China.

We will have the sophisticated but saturated economies of the West, as also the resource rich economies elsewhere, all making a beeline for India. It may well make the difference between survival and extinction for many among them.

Consider that China rescued the iconic Humvee from extinction. Harley Davidson is looking to prospective India sales and low import duties, to pull itself out of the doldrums. In the past, we saved Bofors and Westland helicopters and Jaguar aircraft in their home countries. And at present, we are doing it for Land Rover and Jaguar cars too. Our upcoming Defence purchases are expected to be among the largest global opportunities in this sphere.

Our domestic demand scenario is already good. But the clincher is perhaps the unique Indian blend of management expertise and careful husbandry of resources demonstrated by Laxmi Mittal after taking over one ailing steel mill after another around the globe.

We also have inexpensive labour and the impressive ability to each buy a little to yet make up a humongous total. This is a formula for viability in present times, when much of the West has lost its ability to be thrifty. Besides, we are, even now, the second fastest growing economy in the world.

It is no coincidence that $ 13 billion has come in via FII this year completely wiping out the amount pulled out during the downturn of 2008. FDI too is pouring in at unprecedented levels once again. But this FDI can be enhanced by multiples of the $ 90 billion that has come in between 2000 and now, if the Government were to lift restrictions and bans in many sectors.

It is also true that much of Indian business is not in the public domain. Besides, listed companies, some 7000 in number, of which only about 1000 are actively traded, are often closely held by their promoters, with very little tradeable stock.

This needs to change with more listings from the private sector and venture capital/private equity universe, via IPOs. The huge value locked up in the better performing and near monopolistic PSUs could also substantially enlarge and deepen our stock markets. The Government administered pension funds invest very little, even of the 15% of their corpus they have now been permitted to place in the bourses.

Leading investment player Rakesh Jhunjhunwala, reacting to the present dominance of FII money in the bourses, repeatedly makes the point that the amount of domestic money waiting to be invested is such as to render the FII component insignificant.

Statistically, this is true enough, with just 6% of the savings making its way to the stock market in both equity and debt segments. It is also true, that like China, India has a gross domestic savings rate in excess of 30%.

But Indians are not great fans of financial instruments. They prefer Gold, Silver, Diamonds and Real Estate. This is no bad thing in itself, and can all be leveraged for part of their value if made easier and publicised properly.

Besides, Real Estate development benefits the national growth story quite substantially. This was borne out over the last two years when new construction ground to a near halt, hurting a slew of industries and services from cement and steel to sanitaryware .

As in Real Estate so in the Real Economy, money moves. Boosting the engine drivers with policy and funds may be the best thing we could do for ourselves in Vikram Samvat 2066.

(1,051 words)

17th October 2009
Diwali & start of Vikram Samvat 2066
Gautam Mukherjee


Published as Op-Ed Page Leader in The Pioneer on October 20, 2009 as "Go for domestic market". Also published online at www.dailypioneer.com and archived there under Columnists.

Perils of Polly!

Roy Lictenstein-Whaam!

Perils of Polly!


Polly the parrot traditionally has perilous encounters with the family cat and also with machinery such as fans and automated plate-glass doors not designed to accommodate the needs of feathered friends.

Polly the proverbial young girl has perils of a different order. Hers are mainly to do with attempts by males, females and transgenders alike trying to “make” her; in trains and planes, in mountain or dale, always on the razor’s edge of ruin in classic Hindi film “bachao” default.

But frankly, there is a self-inflicted quality to the antics of bird and dolly-bird alike that makes the less liberal observer wonder why they get into unnecessary scrapes in the first place. Sensible pet parrots confine themselves to their cages. And nubile polyannas should presumably learn to enjoy their perils with the pleasure they apparently provoke.

But then, all this may be the jaundiced view of the classic spoilsport that does not enjoy daily mayhem and murder, has no appetite for subversion and no kink for humiliation either. This spoilsport cannot bring himself to consider such goings on as minor kerfuffles all in a day’s work.

He does not think border incursions and infiltration are to be expected every year before winter and the snows set in. He does not relate hundreds killed needlessly because there is no security of life and limb in this country, to the national population count of over a billion people.

This spoilsport is appalled by the type of liberal who says the state is the actual problem and the quintessential “big brother” style bully just millimetres away from full blown fascism.

Neanderthal caveman of a spoilsport that he is, he must reorient his thinking and perspective, the better to be in synchronisation with the intelligent mood of the times, unconcerned with national security, and in order to maintain a necessary political correctness of demeanour.

The spoilsport needs to also consult the cynical manager’s handbook which opines that it is the manager’s duty to first create a problem, then allow, even aid and abet it to grow and fester and splinter into multiplicities. And then, with sufficient fanfare and publicity, come to the rescue and solve the self-same problem. But in doing so, the manager must take care not to solve it all at once, and certainly not all the problemmettes, root and branch, because then he would be working himself out of a job and heading towards an arid redundancy.

Once properly trained and reengineered into the right frame of mind, the erstwhile spoilsport finds himself smiling in relief. He now points to all the chaos and pointless bloodshed from a decidedly philosophical perspective.

He sees that it is to do with the rhythm of life and the battle constant between good and evil in which the ground rule is that neither side can, or should be, eliminated out of the game and benched fruitlessly.

In the game of life one needs both winners and losers and if any side is depleted by way of attrition, why, it must be replenished without delay so that proper balances can be maintained at all times.

This cynical outlook is apparently not just a management survival strategy but may explain the futility of much of our government policy, particularly in hindsight. Our politicians and their endless prevarication on decisions and their impact on poll prospects, has much, actually much too much, blood on its hands. It is a constant and unwavering saga of late comings and inflated consequences with a dash of too little too late.

We have lost more soldiers and civilians in Kashmir than in all the wars and insurgencies since independence, when all we have done is attempt to maintain the status quo rather than solve the problem. Meanwhile, if its instruction we need, anarchic Pakistan has not been tardy in swallowing up Gilgit!

It is true that we’ve been through these situational challenges almost from the start of our independent journey as a nation : in Kashmir, in the North East, in Bengal, with the Khalistanis in Punjab, and now with Maoists scattered in the forested and tribal areas spread all over coastal and peninsular India.

We have overcome each of these internal security threats to our unity in the past after considerable struggle, time, and lives lost on every side. But we have failed always in preventing the anti-national structures forming, drawing sustenance and growing in influence and structure through the early and middle stages.

We have ignored the financing and counterfeit money injection, the drug rackets, the superior arms and ammunition smuggled in, the training and indoctrination, more often than not from foreign sources determined to harm the integrity of our nation. Even if we knew, we never did anything about it.

The Indian Mujahideen, Simi, and others, constantly renamed, the so-called home grown subversives, are yet another case in point. Particularly when they seem to dovetail seamlessly with the LeT and other Talibanised outfits from across the borders to Pakistan and Bangladesh. In addition, the illegal immigration from Bangladesh, shamelessly aided by political complicity, itself tops some two crore people!

We are today behind in terms of force strength, in men and materials alike, to tackle a large and sophisticated internal insurgency problem. Anti-nationals of every hue and in every hot spot have better equipment, training, communications and armaments, as is evident from the relative casualty listings with each passing encounter.

This has emboldened the insurgents to go on the offensive. They now terrorise and subdue not just unarmed civilians and tribals in remote areas, but attack our police, paramilitary and armed forces in towns and cities. They blow up major infrastructure and disrupt election processes. They propagandise, threaten and issue dictates and fatwas. And the fact is we have brought it all upon ourselves because of sustained neglect.

We are no safer in terms of maintaining our borders, seas and territorial integrity either,with an ill equipped, under staffed, under funded and antiquated security and intelligence apparatus. The escalating internal insurgencies and our military unprepared ness is linked. The only way out is to go on the offensive, as we are now doing in Maharashtra, have done in Bengal recently, and not stop till the job, the entire job, is done. And we must make ready for the backlash on our borders.

(1,051 words)

October 11th, 2009
Gautam Mukherjee

The Way To The Future

The way to the future


Last night I watched a rerun of The Aviator (2004), the acclaimed film on the life of maverick American billionaire Howard Robard Hughes Jr., visionary, inventor and entrepreneur extraordinaire. And I wondered afresh, and not without envy, about a political system and business environment that lets entrepreneurship have full play without any significant let or hindrance.

Competitors, in all his different fields of endeavour: making independent movies, running commercial airlines, designing and manufacturing military planes, making tool bits, were allowed their say, and the effect of their lobbies. They did all they could to retard or stop Howard’s progress but not, it is seen, with much success.

The US Government investigated and harassed Hughes also, partially at the behest of his competitors, and partially because they had some difficulty comprehending his audacity even if he did epitomise the “American way”.

But, through it all, they let Mr. Hughes fight back hard, and let the nation hear his counter arguments. By the time he died in 1976, there was, for all to see, a wonderful flowering of enterprise, invention, daring and robust accomplishment. Howard Hughes enriched not only the quintessential American experience but much of the world at large, owing to the fact that he lived and worked his vision in a proven “land of the free and home of the brave”.

Actor Leonardo di Caprio’s fairly recent rendering of Hughes reminded me of another great American media pathfinder, crusader and newspaper baron, William Randolph Hearst, immortalised in Orson Welles’ masterpiece Citizen Kane(1941). These men are both great American stereotypes, and there are dozens more, such as Henry Ford of Model T mass production, and “you can have any colour as long as it’s black” fame.

That is not to say things were stage-managed for any of them. It doesn’t work that way in “melting pot” America. But the dynastic way does bedevil and stultify most of Europe, South America, large swathes of Asia and Africa, and some of what goes on here in this country.

In such places, the tug of the past, caste, rank, order of birth, gender, feudal position, family money, tribe, religion, loyalty, patronage, ideology, cadre, and so on, exerts a greater, if static pull, than the merits involved, and the beckoning of an uncharted future, however exciting.

So, almost axiomatically, men without the right backgrounds and connections are rendered ineligible. Of late however, meaning the last two decades, the top ten corporations in India have given the partial lie to this “tradition”, by a kind of Darwinian evolution, as opposed to anything pre-ordained by the existing establishment.

Dhirubhai Ambani came from a no-name village in Gujarat notwithstanding his highly educated and capable sons at the helm today, and Sunil Mittal and his brothers, though their father was a businessman already and a Congress MP, were modest bicycle parts manufacturers in hometown Jullunder a scarce 20 years ago.

The brothers Mittal went on to create a telecommunications behemoth and storm into the top ten corporate entities in India, going to over $5 billion in turnover with dizzying speed, and then doubling it again (market value today is over $ 33 billion). And till very recently, they stood at the edge of effecting a $ 23 billion merger with South Africa’s MTN that would serve 200 million customers.

That our home-grown Mittals, the Ambanis, Azim Premji, Narayana Murthy and company, the Singh brothers of Ranbaxy, the Mahindras etc. have done it in a politically suspicious, highly regulated and uncomprehending bureaucratic environment, is all the more creditable.

Other fabled second and third generation players like the Tatas and Birlas have also accomplished much, given a cautious and controlled step-by-step approach to market reforms at all times.

And of course, NRI Steel Baron Laxmi Mittal has demonstrated what can be done by a second-generation businessman without the fetters of Indian command and control to hamper things.

I find myself wondering what might our entrepreneurs have done already with the brakes off! Of course there have been subversions and scams, big ones since 1991, but just because some will abuse a liberal market-centric approach, how can we refuse to play?

Mr. Sunil Mittal and Brothers are stymied elsewhere as well. Bringing in the most successful “pile it high and sell it cheap” mass-marketer in America, namely Walmart, as partners in their retail venture, is viewed by our policy makers, not with joy it should elicit, but with trepidation.

Instead, they favour a self-serving nationalist lobby in favour of reserving retail for domestic players even though it is doubtful if they have access to either the massive finances required or the necessary expertise for organised retail on a grand scale.

Most of our other big companies are facing similar Governmental blocks on what they can and cannot do on top of a highly taxed environment riddled with infrastructure bottlenecks and shortages.

All in all, if we are to face up to the demands of the future we cannot continue to make deliberately dwarfish policy. If we are not yet ready for universal foreign exchange convertibility on the capital account, we might consider devising a second track for our top ten corporate players at least. We should grant them special privileges and backing by way of a soft launch of capital account convertibility.

We can monitor progress to see how it works in a limited context before enlarging the space on a phased basis for others just as we have done already on the current account. This shouldn’t be anathema because we have already declared that we will go in for a convertible currency in much less than a decade.

The Government, in which the PM and FM have already pronounced themselves in favour of the Bharti-MTN deal, should now take the lead in reviving it on South Africa’s terms. After all, all they want is to be able to trade in one of their biggest corporations on their own bourses. How can we fault them for that? Would we like to see a Tata or Reliance bought-over or merged with a foreign entity without that option?

Let us remember we only liberalised in the face of a World Bank ultimatum in 1991 when we were practically bankrupt. But we haven’t done badly because of it since. Maybe it’s time to act of our own volition this time.

(1,055 words)

4th October 2009
Gautam Mukherjee


Published as Op-Ed Page Leader in The Pioneer on 7th October 2009 as "The way to the future". Also published online at www.dailypioneer.com and is archived there under Columnists.