Turning the Corner?

Turning the corner?

What does the recent Moody “Stable” rating given in its “credit analysis on India” mean; quite apart from the euphoria of a 305 point rally on the Sensex?

I am not speaking of the reasons and justifications already advanced by the rating agency in its report, but the ripple effect its bottom-line verdict is already having, within the week after, on the mood and economic perception of India.

After all, it also saw, on the same day as the Moody report was released, the rupee slide to an all-time low of almost Rs. 58 to the US dollar, apparently on the back of fleeing Foreign Institutional Investor (FII) funds and the scarce US dollar in our financial system!

Moody’s report dutifully points to the challenges of the yawning fiscal deficit, the high Government debt, poor and bottle-necked infrastructure, both physical and social, political uncertainty,  stubborn inflation and other issues. And yet, it seems to suggest, the Indian economy is not headed downwards in a ruinous and out of control spiral.  

But does the Moody rating harbinger the end, or at least the beginning of the end, of the precipitous slide down the slippery slope of our economy?

Will others, such as Standard & Poor (S&P) chime in with similar guarded optimism along with the expected bushel of ifs and buts? Probably, because the international rating agencies tend to follow a similar matrix for its analyses. Happily therefore, at least in this instance, the past suggests the foreign rating agencies seem to be the first to indicate which way the wind is blowing economically. And they tend to be taken more seriously too than our desi, largely Government-owned economy watchers.  

This sort of foreign observed prescience spills over into other areas as well. In the old days, if one wanted the truth about the news in real time, for example when Mrs Indira Gandhi was assassinated in 1984, you turned on the radio and tuned into the BBC.

To lend credence to this statement, remember the famous picture of that fateful day which had the just bereaved Rajiv Gandhi standing by an SUV of the time, on a road- side in Orissa, tuning into the BBC on his independent little Sony radio. He was trying to get the unvarnished status on his mother, not really forthcoming on either Doordarshan or All India Radio (AIR), till much later, no doubt after being allowed and cleared to air the accurate reports.

 So, maybe we can look forward to a much economically healthier 2013. You and I may be forgiven for our lack of optimism at this time about the Indian Government’s ability to stimulate the growth that always seems so elusive. And also the pessimism one tends to feel because of our profligate lack of policy consistency.  And also on the legions of economists in our ministries and central banks who tend not to take the need for growth as seriously as they might.

Also, notwithstanding our precarious finances, we are reportedly also about to embark on a direct to- the-poor cash-back policy on subsidies, likely to cost the exchequer thousands, no tens of thousands of crores!

So, how does Moody arrive at its optimism? Frankly, I don’t know, despite the reasons given, except to say that perhaps things are not as bad economically as they seem. And perhaps we gain in comparison to the crumbling economies of large parts of Europe.

At least, we in India definitely possess almost bottomless demand domestically, and that is nothing to sniff at. Any classic economic analysis has to concede that having the demand is half the battle won. All that remains theoretically is the supply side of things. But in India we have a talent to make everything as difficult and complicated as possible, so nothing necessarily happens in logical progression.

The other point, among the many made in the Moody report, is with regard to our inadequate and over burdened infrastructure, which curtails our progress more effectively than the vagaries of our political process.

And in this, the point is hampered only one part by lack of finance and administrative inertia. The other part is to do with inadequate know-how, and perhaps an embedded reluctance to acquire it from elsewhere.

In this connection the recent initiative to collaborate with the Chinese to develop high speed Railways for both passengers and freight is most welcome. Among our inheritances from British times, the Railways are amongst the most valuable, but we have not been able to seriously modernise or upgrade the network to current day standards. We have extended it and converted gauges, yes.  And we were able to go from steam to diesel to electric gradually over the years. But our rolling stock, signalling systems, track technology, railway station infrastructure, catering and cleaning systems and so on, all still belong to a bygone era.

The Chinese have built the spectacular Beijing to Lhasa Railway in record time overcoming major challenges, as well as many other high speed train links to rival the famed bullet trains of Japan or the TGV of Europe. They can certainly guide our efforts, and it is most pragmatic of the Government to think of asking them to do so.

And those who feel that the best way to right the balance of trade with China is to actually engage in more of it, are naturally delighted. It may also contribute to a lessening of tension and suspicion between the two nations, despite the border disputes and other outstanding claims and counter claims of territory, the controversial and colonial McMahon Line and so forth. 

Our economy has suffered since the world economy crashed in 2008, not from a lack of opportunity to grow, but from too much caution in the face of turbulence. We choked off our own growth rate by raising interest rates and making credit unaffordable, without however being able to control inflation imported with our ballooning oil bill.

It is an obvious indictment of our incipient Socialism, still lurking just below the surface, that we think nothing of sabotaging growth whenever we want as a first option. But wrecking a nearly nine per cent per annum momentum in the GDP to serve the cause of controlling “food inflation” was, and is, arrogant and short-sighted. To build it back from five per cent will not be so easy. 

But perhaps now, in the final years of the present Government’s tenure, we will rectify the imbalance in our over-reactions and promote growth afresh. The Prime Minister, the original Mr. Reform of 1991, has declared his intent in plain terms. The West seems to believe him.

(1,105 words)

28^th November 2012

Gautam Mukherjee

One for the Money, Two for the Show

One for the Money, Two for the Show

The belated Congress/UPA boosting of the Reforms process, reiterated at their  show-of-strength rally  in Delhi and bussed in Chintan Baithak at Suraj Kund, Haryana, needs to be unequivocally welcomed.

It may have come against the threat of India being down-graded to “junk” investment status by the international rating agencies, making our international borrowings costlier in the event, and promising to dry up the relatively meagre investment funds flow. But at least it shook the Government out of its neo-socialist reverie even if the grim statistics did not.

There is a definite silver lining to the no-nonsense development. It is a truism after all, that India takes perverse pleasure in being at least fifty years behind even featherweight countries in terms of development. Thank God therefore for the presumed objectiveness and incorruptibility of the rating agencies!

Building protectionist barriers are just postponement of the inevitable. Chinese goods, for example, are ubiquitous in Indian markets and are being lapped up enthusiastically by a public that finds them cheaper and better. This competitiveness cannot be legislated away.

The fact is, better goods at cheaper prices are people friendly. Even goods that may not last, but have fancier bells and whistles at a cheaper price, are perceived to be worth the money. And none of us care where it comes from ideologically.

Besides, every internationally designed garment is tailored in China and very well at that. One is forced to acknowledge the powerhouse of manufacturing that China has become. And no protectionism steeped in wishful thinking can reverse such tides. And this is without reference to the project-execution capabilities and  other such formidable Chinese strengths.

But yes, there is a need for greater inclusiveness in our progress. Reform cannot be allowed to lead to19^th century robber-baronism. Though our scam-a-day reality does not need reform to flourish anyway! Still, it is paranoid to be suspicious of foreigners, their capital, and know-how. We need instead less lip-service and more action on the ground.

The much vilified Gujarat administration for example, routinely labelled communal, yet is reported to have the largest number of Muslim policemen in comparison with any other state!

The routine cheating of hearts in the name of the poor, the minorities, the ordinary citizen, has to be replaced with a true spirit of public service. Activism from Anna Hazare and his cohorts, and Arvind Kejriwal and his, only underscores the notion that the political classes have abdicated this space - to them and others, like the RTI based activists, the Swamis and Babas etc.

This is a time of shifting sands. And this reality, juxtaposed with the recent reports that India will become the world’s biggest economy by 2060, surpassing that of China, even as our per capita will be one of the lowest. This is the real stuff of Chintan Baithaks to come.

Will we grow so big because of the low cost economy fuelled by millions of newly born poor people? Or will we dominate the world economy because our consumption and demand per capita will drive growth at over 5% per annum compounded? Or does the credit go to the improved infrastructure to come that will help sustain a high level of GDP growth?

And socially, are we going to polarise between a few rich people with the ability to buy endlessly and millions of poor people with little or no purchasing power? Or will it be a relative thing all the way up and down the pyramid?

Many large business houses making cars and FMCG today are busy catering to the “sachet” market on the assumption that one can grow very wealthy in India selling to the poor. We may be quasi-socialists as yet, but are still the envy of the ageing and shrinking populations of capitalist Europe and even China. Our very failure at draconian population control, the storied “do ya teen bus”, may be our White Knight.

Today, looking back to the extensive population control campaign of the Seventies, most families indeed have two or three children; but then the base line has expanded to nearly 1.25 billion people.

Coming back to the crossroad in 2012, raising a bogey against the wheels of progress, CPI(M) or TMC style, against globalisation and foreign direct investment as an ideological aversion amounting to anathema, is purely negative milking of a fear.

The fear-mongering is that the aam aadmi will be badly affected by what will bring modernisation, efficiency, quality-boosting and progress. And that being linked to the global economy is to sink with it. There is no hope in the Leftist mind that the Western economies will ever revive from their excesses and no recognition of business or economic cycles.

This self righteous but actually spurious protest may well turn out to be the theme in the coming session of parliament as well. This, and the thundering against the wall of corruption of tsunami proportions threatening to engulf us.

But preventing parliament from functioning does nothing to cover the principal Opposition, the BJP, in glory either. The aam aadmi  ends up paying to witness a boorish circus time after time with nothing to show for it. This will be the third session in a row, if it too is stymied.

And the public can be forgiven for being confused about what the political Right stands for economically. After all, it keeps making common cause with the radical Left whenever it suits them. It also accuses the Government of rampant corruption while stubbornly refusing to measure itself against the same yardstick. Messrs. Jethmalani, both father and son, eminent lawyers and BJP leaders that they are, don’t seem to be making a dent.

Besides there is more, the size of a herd of elephants in the roomy chambers of the Lok Sabha. The puerile attitude of painting Maoists as disgruntled patriots for example. Old assumptions like the inviolability of treaties with the State of Jammu and Kashmir which need to be urgently abrogated. And why wait when even political dynasts from that state call India the “Enemy”?

No country should tolerate such challenges to its sovereignty without revisiting its  date-expired much too liberal premises. Why is this one quasi-state allowed its outrageous privileges in 2012, and why is the rest of India paying for them in money and blood?

And this, when every other constituency, such as the Princes, the private banks/ insurance companies, the zamindars, etc. promised, in 1947, Government protection till the end of the republic, has been ruthlessly ravaged by the state.

We have just come through yet another “festival of lights”. So when oh when do we start vanquishing the darkness?

(1,102 words)

13^th November 2012, Diwali

Gautam Mukherjee