Goodbye Consumer Growth, Hello Infrastructure

Colours in motion- Georgia O'Keeffe

Goodbye Consumer Growth, Hello Infrastructure

As India approaches its 64th Independence Day, we could look at the present economic situation both as an opportunity and a threat. Only a lack of imagination, which we are, alas, quite capable of demonstrating, will make it six of one and half a dozen of the other. Meanwhile, the world media has been reviewing 20 years of Indian reforms, and wondering when the stream of progress disappeared underground like the legendary Saraswati.

Consumer growth, and in this, one needs to include, despite the stretch, private sector investment in capacity expansion/modernisation; is bound to be impacted by the RBI’s rate hiking spree, with the Finance Minister saying there may be more to come. Ditto for the equity markets and job market, though short-term debt funds are doing well in this high interest scenario.

On the street, this will mean fewer new cars and less frequenting of bars. It will mean less home buying and more renting. People will pre-pay loans and pay off credit card balances, even as new loans will grow scarce, particular, and pricey.

All this fiscal discomfort is upon us in the cause of taming inflation, particularly food prices, and also because it is now hovering at just under double digits, making short work of any earning increases one might garner.

But as usual, there is a silver lining to this cloud when it is realised that one need not quarrel with the stringent Government action to control inflation, because it can be done without sacrificing GDP growth too.

Except that the growth, like in China over several years of double digit postings, has to come from Government and public sector investment in long gestation period infrastructure, making up for shortfalls in resources by contracting foreign credit, development funds, and supplier/partner equity.

This will entail getting away from the paranoid dogma of post-colonialism and third world Socialism that imagines that every foreign trading partner is an avatar of The East India Company. Internationals have long shaken their heads in disbelief at some of our tender conditions. It is as if we are not only holier-than-thou but distrustful and precious as well.

Instead of this inferiority complex ridden outlook, we must attract Government-to-Government funding and expertise, like the Japanese funding of the Delhi Metro and its largely French know-how. Also, consortia, made up of public and private enterprises, nominally from home with its slim pocket-book, and substantially from abroad, instead of the other way around.

And all these players in it together, in order to make an equitable buck for each, while moving India’s developmental ambitions along.

This is the kind of investment both in financial quantum, and years, of input, before one can hope to see an output, that the private sector in India cannot properly handle. It is actually much too small. The public sector, unlisted in the most part, monopolistic in strategic areas too, is several times larger, as a recent report pointed out, but even they are not up to the task, both financially and managerially.

Fortunately, the Government is thinking along these lines already. Recently, it has moved to sweeten the terms of FII investment in infrastructure bonds with a shorter lock-in period, chastened by a luke-warm response to a three year sticker.

They also think it is time to permit substantial foreign investment in multi-brand retailing, not just in consumer durables and apparel etc. but food, and lift restrictive conditions on foreign entities, confined so far, tied to minority stakes, and wholesaling.

This is excellent news because, if implemented, it will prevent rot and wastage in our agricultural produce to market dynamics, create refrigerated cold chains, modernise procurement practices and raise value-addition and food processing standards, and raise the remuneration of farmers and other producers. But, setting all this in motion and thereby delivering new, qualitatively better options to the consumer at more competitive prices will, of course, take time.

Similarly, as consumers everywhere are bracing for higher electricity tariffs, it is a good time to put in those state-of-the art nuclear power plants from France, the US, Russia, Canada, Japan, that were fought for so hard by UPA 1.

Nuclear power plants have a considerable gestation period, before they get to turning out stable, long-term, and relatively cheap power. A nuclear power plant from France’s Areva, for example, has a life-span of around 60 years.

They need to be sited, because of threat of terrorist or enemy attack, not on the beach, like protest-ridden Jaitapur, Maharashtra, but in concrete secure installations underground, or inside hill-sides as if they were military targets. After all, they could well be, in the somewhat charged South Asian theatre.

But dozens of nuclear power plants, supplied in due course with domestic uranium, since we have now found very large deposits, plus one of the largest global availabilities of Thorium, makes this form of power generation the logical choice of the future. Moreso, since we have to import over 70 % of our petroleum products, and demand is growing all the time. Petroleum prices are indeed one of our most critical cost-push factors towards inflation.

There are other projects in the defence realm, the building of our own aircraft carriers and other large warships, nuclear submarines, the building of military aircraft, satellites, missiles and their delivery systems, protective and defensive clothing and so on, that can be developed in the interim. We can substantially help the economies of the West at this critical juncture, even as we help ourselves in these strategic areas to reduce our dependence on imports.  

Then there is the building of strategically important all-weather tunnels in the North West and North East.

And even if we accomplished only a small proportion of some of the things outlined here, along with other infrastructure work also underway, the building and retention of a 10% or more growth rate would be assured for several years to come, and this, with proper long-term contracts signed, without spiking inflation.

It would also, thanks to the new infrastructure to come, as the former Indian kings built palaces in times of famine, and President Hoover built the Hoover Dam during the Great Depression, set the stage for a prolonged consumer-led boom in the future.

The alternative to this growth by other means could well be not just a slow-down but recession. And while that will certainly stop inflation in its tracks, it will sorely damage, if not put an end to, the India growth story.  Surely we don’t want that to happen. Instead we want to reboot, at 64, the next leg of the Reforms process, led this time by the infrastructure sector.  

(1,104 words)

28^th July 2011

Gautam Mukherjee

Published as leader on Edit Page of The Pioneer as "Reboot and reform" on August 10, 2011. Also published simultaneously online at www.dailypioneer.com and archived there under Columnists. In addition, it appears in the day's ePaper as well.

Kick the Tyres, Light the Fires

Kick the Tyres, Light the Fires

We need to get ready. Ready to make the most of a scenario where the West is having a very tough time managing its colossal debt burden. It’s not just the European Union with country after country going belly-up. Currently it’s Greece, Spain and now Italy, the 3^rd largest economy in the EU, groaning under the twin scourges of massive debt and recession. 

Meanwhile President Obama, across the Atlantic, is trying to get the US Congress to permit the raising of the American sovereign debt ceiling, because otherwise the US will run out of money in a matter of days. This in turn could set off a global debt crisis of unprecedented proportions with cascading defaults and runaway interest rates, while causing a crisis of confidence in international trade and a tsunami of damage in the real economies around the globe.

But, as in India, there’s party politics afoot, rather than the urgent bipartisan cooperation required. The Republicans don’t want higher taxes if they agree to raise the debt limit. And the Democrats, want to do something about reducing deficits already at stratospheric heights, before they permit their President to raise the debt ceiling.

President Obama, skilful politician that he is, is trying to give both sides a little of what they want, playing off short-term considerations in favour of the Republican position, while bargaining for long-term strategies to bring down the national deficit to please his own side. Being a President who has been managing one crisis after another, mostly of an economic or military nature, from the first day that he stepped into the Oval Office, I have no doubt that he will succeed in the immediate sense.

But afterwards, the US and Europe will have to make more substantive changes to the way they deal with the global order, because the very engines of growth have shifted.

India has debt too, and much of it born of inefficiency and the taking of policy soft options for populist reasons; and yet it’s nothing like what they have in the West. This is partly because we have simply not been able to borrow as much internationally, or on the terms that the Western nations have been able to give themselves. And partly because of an innate conservativeness of approach.

But now, the West doesn’t have growth either, because they’ve already completed that economic cycle through the post WWII era for several prosperous decades; and now, there is too much and duplicated capacity in largely out-of-date manufacturing facilities, and not enough customers for their “rust-belt” goods.

Of course, things are fine in pockets of excellence, such as defence production, sophisticated engineering and aviation, and in those higher reaches of software and IT, even entertainment, where America still holds the commanding heights, along with the likes of Russia, Israel, Britain, France, Germany, Japan, and yes, China.

India is many leagues behind the big powers in this and most other regards. Ours is still an economy of want and obscene disparities, with bottled-up and unmet needs from years of lag. At fewer than two trillion dollars in GDP, we also lack any real size as yet.

India needs more of almost everything- more electricity, more roads, more dams, more schools, more hospitals, more education- it’s a seemingly endless list of considerable magnitude. We don’t have enough of any of these things, neither by way of quantity nor quality, probably because of lazy governance and lack of resources.

India does have domestic demand though, almost endless demand for at least twenty or thirty years of development at an accelerated pace; and probably a half century of it, if we keep trundling on as we are.

We need to pick up speed and go faster than a no doubt creditable 7 to 9 per cent pace of growth currently. Because even this has us falling behind on every planning parameter, with massive cost overruns to boot. And yet, compared to negative growth or a weak percent or two in the West, our growth rates are phenomenal.

Still, given the scale of our requirements relative to the size of our economy, almost every macro-economist agrees that we need to sustain double digit growth in GDP if we are to abolish poverty amongst 400 million of our poorest. But double-digit growth can only come if we take the bold decisions necessary to attract the foreign capital we will need.

Some say, perhaps in apology, that our pace of growth is better assimilated and sustainable precisely because it is not ahead of demand.  This, of course, is a self- serving justification. China swiftly and deliberately creates vast and modern infrastructure much ahead of its demand curve.

And yet, use the Indian model or Chinese, it is the destiny of these two Asian nations to take up most of the slack in the 21^st century, along with Brazil, Russia, and some think South Africa. The situation in America and Europe will not ameliorate anytime soon without huge structural and policy changes. Their Governments need to engineer a true partnership with the emerging BRICS and other lesser economies, not only in the sharing of opportunity, expertise and natural resources, but political power too. Therefore many international prescriptions will have to be rewritten, many treaties scrapped.

Besides, the very globalisation process that began with the export of low-end manufacturing and service industry jobs, mainly to the cheap labour areas of Asia decades ago, will now have to perforce migrate up the value chain, with greater and greater technology transfer, even-handed cooperation and reciprocity.

Without this, except for those areas where BRICS, and beyond them, the rest of the world, have too large an expertise gap to bridge, Western commerce with the globe will grind down further.  

In order to start growing again, as it must, the developed West must jettison its traditional closed-shop style of international bargaining. Just throwing money at its moribund economies won’t work because most of it tends to migrate abroad where the opportunity for profit in commodities and other trades is greater.

It will have to bridge the traditional North-South Divides substantively and proactively, in ways that have never been tried. And yet the exigencies of survival will certainly prompt the change sooner rather than later.

But the truth is, India and China and the other BRICS also need Western expertise, organisational finesse and technology, just as much as they need our markets. They need to be ready to trade the one for the other, but the chances of striking good bargains have only risen sharply of late.

(1,092 words)

21^st July 2011

Gautam Mukherjee


Published as Leader Edit in The Pioneer on 28th July 2011 as: "Time for India to surge ahead". Also online at www.dailypioneer.com and in The Pioneer ePaper. Archived under Columnists at www.dailypioneer.com

Land of Hope

Georgia O' Keeffe

Book Review: INDIA Land of a billion entrepreneurs

Author: Upendra Kachru
Published by: Pearson. 2011.
 258 pages. Rs. 399/-

Land of Hope

Mr. Kachru’s new book makes for a stimulating, free-flowing read, and since its tone and thrust is both optimistic and grounded, it is also inspirational. A management thinker that waves the Indian flag with logic and pride is refreshing, particularly when he not only recognises how far we have come since liberalisation of our economy began in 1991, but has a fair estimate of how far we are going. There is therefore much to recommend, by way of educational input and original analysis in Mr. Kachru’s latest offering to the lexicon of management theory.

One exciting idea is the highlighting of 55% of our population, rural and urban, being self-employed. To a cynic this may seem like a euphemism for “unemployed” or “under-employed”, but common sense dictates that survival from the grass-roots upwards proves, and to be a valid statistic, it has to do that much, that these people are necessarily entrepreneurial, albeit to  a lesser or greater extent, and with varying degrees of success.

Of course, in counter-point, we can see that the modestly-paid over-employment in Government departments, and the resulting inefficiency and corruption therein, does not exactly recommend employment as a panacea in itself. But the moot point is that today there are many opportunities that were not there in our Socialist and Public sector emphasising years, and this book gently urges us to see the possibilities in this.

This percentage figure of the self-employed, when applied to a population cresting towards 1.25 billion people, is indeed gargantuan, and possibly holds the key towards the ultimate, if somewhat utopian goal of full employment.

Another compelling proposition, has the author suggesting that India has deployed its educated middle class into the breach of the global knowledge economy, particularly in the IT realm, very successfully at that,  because it was the right thing to do while it plays catch-up on infrastructure, technology induction etc.

While it is doubtful if it was as prescient and deliberate as all that, it certainly seems like a brilliant idea in hindsight, given the numbers of high quality graduates from our IITs and IIMs, thanks to the originally Nehruvian policy of putting substantial resources into higher education.

Besides, our current Home Minister and formerly several terms Finance Minister, Mr. P.Chidambaram, likes pointing out that the private sector cannot do very much on its own without Government backing. Since Information Technology (IT), is more or less a private sector phenomenon, it is arguable that Government support by way of tax breaks and patronage may very well have played its part in its success.

However, on the global stage, we have remained largely body-shoppers obsessed with H1B Visas to the US, even after two decades of emergence, rather than people who have climbed up the value chain with branded and copyrighted complete software solutions.

Still since one must do what one can,  it is good to remember that this has not stopped the Chinese from reaching a very influential position in global commerce, with dominance in the manufacturing of  all manner of low-end products from dolls and surgical steel ear-ring hooks and eyes, to the world’s one stop-shop for computer hardware, largely for export.

Simultaneously, China manufactures high-end defence equipment including missiles, aircraft, nuclear submarines, even aircraft-carriers, and the Chinese have state-of-the-art infrastructure for dams, bridges, tunnels, high-speed trains, highways, and pipeline building capabilities for domestic use. So doing what we do in IT should not hinder India either. After all, there is little percentage in challenging your buyer’s survival on his own home turf!

IT does contribute nicely to our relatively new-found “service economy”, which now accounts for nearly 60% of our GDP, risen from well under a half billion in US dollars at the end of the Madame Indira Gandhi era, to nearly $2 trillion now.

Meanwhile, as Mr. Kachru says, other areas of public and private endeavour, such as manufacturing, agriculture, processes, systems and technology upgradation, are gradually addressing the demands of the second decade of the 21^st century.

That this is not going as well as it might is fair indictment of our governance and innate timidity of policy-making. A Socialist era hangover in the form of left-liberal economics still holds considerable sway in India and so gradualism is the best we can hope for, despite consequent huge cost overruns and scandalously slow project implementation. Not for us, possibly ever, the Chinese pace of getting things done!

However, this book prefers to look at the glass as half full rather than half empty, as it rightly should.

The avoidance of jargon and a minimum of graphs and charts to bolster arguments and an engaging anecdotal style, is also appealing in this book. Particularly because so many management theorists affect the use of a rather dry and stastistics/reference heavy approach, that tends to obscure more than it reveals, except perhaps to the most in-the-know of academicians. But for the general reader, this book is both clear and interesting.

The author illustrates his points on the many facets of entrepreneurship with many first-hand interviews and studies of well-known and successful Indian companies in diverse fields, including Rahejas in construction and real-estate, data-storage success Moser-Baer, and the home and abroad luggage maker, VIP Industries.

And being a professor himself, after being a company executive too, Mr. Kachru stresses the importance of skill upgradation. This is what turns a small business into a bigger one, fuelled by the confidence that the newly acquired knowledge can bring.

(929 words)

12^th July 2011
Gautam Mukherjee

Meat and Potatoes

Meat and Potatoes

Sunday Times of London Style Magazine food critic AA Gill, a Scotsman with a Sikh name that he does not explain: perhaps it was originally McGill, but he dropped the Mc because of its less than haute cuisine association with the branded hamburgers. McBurgers, that have been sold so plentifully, that if they were laid end-to-end, they would go to the moon and back several times over.

Mr. Gill, who might be a Sikh after all, also has initials in place of his first names, and wrote, somewhat enigmatically, in a recent restaurant review, that “meat is all eugenics and fascism”.

AA Gill is a mysterious sort, often favours dark glasses and eschews alcohol, despite being a food critic. He goes on the strength of his intelligence, taste, language and stylistic skills, even if he doesn’t ever say so himself. All this, without once imbibing the wine.

As for Gill’s typically elliptic comment: did he mean by the former moniker, the genetic engineering and up-breeding involved to produce superior meat? And the fascism is presumably the uncompromising attitude necessary to make it happen.

This applies to beef and pork, because they are the serious meats of choice in the Western world. Fowl, Turkey, Duck, however formidable, are also-rans, decided poor cousins, to whom the same principle may well apply, but without the same degree of exactitude and accountability.

Though it is at once true, that huge, essentially tasteless in themselves turkeys, like triple distilled Vodka, have been known to feed mini-van fulls, of family and friends, while still yielding left-overs.

This even as one turkey is pardoned every year. A reprieve granted by no less that the President of the US for Thanksgiving, that peculiarly Puritanical Pilgrim Fathers celebration at the heart of American prudery.

Besides, one wouldn’t know how to classify snake-meat, not to mention, kangaroo, horse, seal, elk, moose.

Where that leaves the eponymous potatoes that proverbially accompany the meat, is anybody’s guess. And this in all meat-eating countries, including Ireland, though there, they allegedly prefer to live and die by the potato.

My personal guess would liken them, the humble potatoes, to the excellent back-up singers without whom no singing stars of heft would properly shine. However, ask them, and the back-up singers, like stage-lights, will profess contentment with their good jobs to do; no more, no less.

Another report, not written by Mr. Gill at all, on European, U.S., South-American, Australian, and Japanese milk, certainly; and others who follow their Dairy-farming practices, indicates that it contains all manner of additives fed to the cows that gave it up. And that drinking quantities of milk production enhancing boosters meant for the cow, but inescapable if one imbibes its milk, may not be all that good for humans.

European and American dairy-produced milk, has large draughts of cow hormone boosters, and cow vitamins and cow tranquilisers too. But clearly, what may be divine for the bovine is not so for old “two legs”. Also, milk from the free-on-the-range variety, spending their days in bucolic grazing, like the Swiss Chocolate mothers, perhaps don’t poison as they sweeten.

Fortunately, milk and meat are two different things. Though the cow hopped-up on boosters is also capable, no doubt, of contributing wonderful tenderloin. So delicious as it may be, to drink from, taste, eat; is eugenics, let alone fascism, working out to be a hero or a villain?

And so, at last, to the question, drawing upon the ready analogy, of whether India has, you know, meat; or is merely aggregated from the potato patch, bless its soul.

The moot point in this: it all begins with land. There’s land for grass and land for things in concrete and other bits for the macadam and rail. But first, there is indeed the land. Now in India, land is the best way to get-rich-quick if one has the power to change its use parameters- the hallowed Governmental stroke-of-the-pen CLU (change in land use), a kind of open-sesame planning permission, transforms the potato patch into very powerful, and enriching meat instantly.

The farmer/land-owner sells, or is compelled to sell via acquisition notices from the Government, using an 1894 law that permits daylight robbery, because the unilaterally set acquisition rates have no bearing on prevailing market prices at all.

But it isn’t as if the Government is not aware of the profit potential of the agricultural land thus acquired. But in its original “use” state, one can only grow food or graze livestock on it. But after the Government turns the self-same land, notwithstanding whether it is arable or waste-land, into “commercial” or “residential” or “institutional”, hey presto, by just changing its classification, it turns into a gold mine. And there are many takers, willing to pay many multiples of what the Government paid the farmer to usurp his land just a few pen strokes ago.

This is what is at the heart of the meat and potatoes conundrum, because quite apart from normal co-existence, in this context, said meat and said potatoes are actually interchangeable, and never mind the incipient eugenics or fascism involved!

This inherent unfairness to the original land-owner goes a long way to explain the political fortune boosting propensities of both Singur and Parsa-Bhataul.

And for once, Mr. Rahul Gandhi has latched onto a genuinely worthwhile cause. His suggestion that there should be two land acquisition laws, one applicable for roads, bridges, railway lines etc. and another for SEZs, institutional, residential/commercial development etc. has substantial merit.

Government might be justified in commandeering land cheaply if it truly puts it to a “public purpose” like said road, port, rail etc., whereas all the other uses, just various forms of property development, benefit limited numbers of people at best, including the pen-wielders involved in conjuring up that all important CLU, but to the decidedly unfair exclusion of the original land-owners.

A colonial administration, which is what obtained in 1894, was of course not interested in serving any interests other than its own, but, as in much else that involves the independent Government of India to date, it has seen little reason to change its ways, or its laws, to actually serve the people it, in effect, lives off.

Still, at present, new land acquisition laws may indeed come to be passed in parliament and not just the state assemblies, because they are of interest to Mr. Gandhi and ergo, to a Central Government. A Central Government moreover run by a Party intent on embarrassing the state government of Uttar Pradesh in the lead up to the forthcoming assembly elections there in 2012.

(1,099 words)


10th July 2011
Gautam Mukherjee