Above all, do no harm

Above all, do no harm

Lord Meghnad Desai, formerly at the helm of the famous London School of Economics, (LSE), hoped, in morning discussions, that the Finance Minister wouldn't rock the boat, saying : "Above all, do no harm".

Amongst the procession of the high and mighty from politics and commerce, the eminence grises, economic journalists, trade-body and stock market representatives etc. that followed with their comments, no one ventured to express high expectations.

And they were not disappointed. As it turned out, despite the deluge of relatively modest numbers and allocations to a large number of headings, one of the most pedestrian budgets in recent years followed.

It didn't do the kind of harm that Mr. Pranab Mukherjee's budget did, with his retrospective tax ideas, intended taxation of mergers and acquisitions of foreign companies with operations in India and going after those who appeared to be deliberately using loop holes to avoid tax, including foreign companies operating in India.

It tried instead to assume a posture of being pro-poor, pro- women and pro- infrastructure for the poor; but the credibility of the UPA Government's ability to deliver is so low, that no one was the least bit impressed.  But no doubt, the UPA will take the provisions of the budget out to the hustings to try and scare up votes in its favour when the time comes.

This must be the intent, particularly in the year or so left to go before general elections. But one can’t be blamed for being puzzled by the lack of passion.

However, this budget, is unlikely to please any of the target constituents. It is inadequate in every respect and cannot satisfy either in terms of allocations made, or in being administratively likely to provide very much in the short time left.

Mr. Chidambaram manfully kicked the ball on General Tax Avoidance  down the road to 2016. In fact, most of the intentions expressed in Mr. Pranab Mukherjee's 8^th and final budget as Finance Minister have been reversed by Mr. Chidambaram in his own 8^th budget presentation.

This bears the shadow seal of the prime minister who allegedly didn't think much of retrograde moves that drove away foreign investors at a time when growth itself was faltering.

We have had a slowing economy for some time now, and relatively gloomy forward projections, because even a 6% GDP growth level is insufficient to take care of the country's burgeoning needs. Particularly its welfare programmes, which  continue unabated. The overall expenditure though, already at a high Rs. 16.75 trillion, was hiked by a further 16% in the budget to suit.

There was nary a murmur of downsizing the Government, or tightening its belt. Instead a number of indirect taxes were imposed on the middle class to finance, or in fact, partially finance, the growth in expenditure. This back-door taxation was akin to the freight- rate hike and hike in reservation fees announced in the railway budget.

And these did not spare such everyday middle class items such as set-top boxes, cellphones, eating out at restaurants and flats being purchased which were larger than 2,000 sq.ft.. Neither did it spare the SUVs of the aspirational.

But there was no attempt at widening the tax base. For symbolic effect, because it is unlikely to yield much from the 42,800 people with declared taxable incomes of over Rs. 1crore, out of more than 1.3 billion people- there is a 10% IT surcharge on them, and a bump- up of corporate taxes as well.

The bulk of the thrust was on indirect taxes that the middle-class, some 350 million people, cannot escape.

The Finance Minister of Dream Budget fame in 1997 with his espousal of the Laffer Curve to bring in more willing tax payers was present today; but only in so far as he didn’t venture into death duties and a more onerous wealth tax.

All in all, this timid budget will not win the forthcoming assembly and general elections for the UPA. Neither will it annoy the intelligentsia or business particularly, because it lacks sharp edges. The stock market will continue to languish unenthused and the FIIs will wait and watch.

And none of the big ticket issues, such as inflation, growth, or revival of business, industry, infrastructure, the great common weal for that matter, will be touched by this budget. FDI will wait till after 2014.

This budget has been labelled “prudent” by many, mopping their brows in relief that it hasn’t set out to do serious damage. But it makes one wonder what the Government is most afraid of. Could it be change, let alone transformation?

(766 words)

February 28^th, 2013

Gautam Mukherjee

Another Pauperising Railway Budget

Another Pauperising Railway Budget

Union Railway Minister Pranav Kumar Bansal quoted Kautilya to emphasise the importance of Artha or money to any enterprise. It made one sit up in hope, expecting him to make strong moves to restore the railway’s financial health.

But it was only so much flattery to deceive with other couplets of poetry strewn about as well. Praise for Mr. Bansal’s tepid efforts came only from partisan supporters such as Finance Minister Chidambaram and Prime Minister Manmohan Singh, who made the surreal comment that it was “reformist”.

In the end, Mr. Bansal made much of wiping out the Indian Railway overall losses of Rs. 24,000 crores. But, his ambition is limited to putting about Rs. 30,000 crores back into the till by 2014. The entire budget speech smacked of unrealistic, unconvincing aspiration, long laundry-lists of detail, but  was abjectly timid in real terms.  

Mr. Bansal made announcements on many additional facilities, factories and trains, carefully ignoring Opposition ruled states, and spoke improbably of raising an unprecedented amount of Rs. 100,000 crores via the often problematic PPP method. 

He was also selling everyone short, or has set himself very low standards, when he put a figure of a mere Rs. 94,000 crores towards the requirement for development! The UPA II Government seems self- satisfied with tinkering at change and ignores transformation altogether .  It has taken the annual nature of the Railway Budget much too literally, and is quite opaque on the need   for continuity of progress.

 The Indian Railways are hardly fit for the 21^st century, one needs to see any modern railway system abroad for this point to be driven home. And with the recent sharp deterioration in safety and security, and other standards, large tranches of the better-off  middle classes have abandoned train travel altogether in favour of aeroplanes.   

Yet the Government, its Railway Minister and senior Railway Board officials, brazenly indulged in statistical jugglery to talk of declining accident rates. If there are hundreds of obscure train routes, they do help to dilute the statistics on routine accidents and deaths caused thereby on most, if not all the busiest routes! To boldly emphasise this sophistry is to insult the intelligence of ordinary people. Law and order on board trains, replete with muggings, robberies, rapes and murder, is also increasingly common.

Ours may be a large, if not the largest, railway network in the world, but it is highly antiquated and redolent of the colonial period. And the modernist moves such as e-ticketing and wi-fi on select trains, while most welcome, resemble the effort to keep the doughty Ambassador car going.

 Adding Isuzu engines, power brakes, better wiring and some limited electronics, do not still a modern car make. The fact is, it is a chariot from the fifties and retrofitting it is the first cousin to nostalgia. It makes little sense.

Similarly, the first Railway Minister from the Congress Party after 17 years did not venture to increase passenger fares even as he cited, multiple times, the costs of services were outstripping income at every turn.

Raising freight rates is inflationary, but it has been done.  Raising passenger fares is not, but it was not done, stating that they have been raised recently. But that was a minimal increase, and one needs to do it almost as often as the change in diesel, petrol and LPG. An attempt to align just petroleum price hikes has been attempted on freight rates, but many other things need to be brought up- to- date to cope.

Mr. Bansal has decided to raise marginally more revenue, raising freight rates by 5% on average. This is not enough to even meet rising costs, let alone modernise freight handling systems and processes. However, rates for reservations on tatkal basis, and on superfast trains, have thankfully been hiked. But because the vast majority of rail travellers are not being made to pay more, neither can the services be improved for them.

Sixty- seven new express trains have been added, but nothing has been earmarked for the updating of infrastructure. New trains have been announced, assuming that they actually see the light of day, they must perforce run on the age-old rails. This, and ancient signalling equipment etc. is what compromises safety along with free access to undesirable elements.

The sacking of Gopalganj station in Madhya Pradesh, minutes after the Railway Minister finished his speech today, after two children were killed in yet another railway accident, is a fitting cameo. Our stations are only fit for period films set before WWII. The Great Indian Railway has lost its romance as it struggles for survival in inadequate hands.

(771  words)

February 26^th, 2013

Gautam Mukherjee

Banking See Banking Do

Banking see Banking do

The Government has announced the licensing of new private “high-street” banks, with a much wider qualifying net, with up to 49% foreign holding, up from 26% previously allowed. This is a good thing as there is a considerable shortage of banks that lend money to worthwhile private enterprise and risk their arm with funding start-ups.

 Presumably, there will be less official dictation on whom they can lend to, though it would be a departure from the Government’s/bureaucracy’s way if it is indeed so. They intend to let the authorities, that is the RBI, the CBI, the CBDT etc. to go into the background and vet who can qualify to be licensed. But at least all sorts of entities, including existing NBFCs, can now apply.

There will also be safeguards that will seek to prevent the promoters from taking in deposits and vanishing. Though, of course, they could always give the money to proxies to exactly the same effect.  There will also be reasonable shareholding norms of up to 40% for 12 years and not less than 15% thereafter, so that the original promoters, don’t start trading in the banks and bank licenses themselves. And good enough seed capitalisation standards too, to make sure the banks have depth and commitment.

Successful licensees will also be required to list their banks on the stock exchanges within 3 years implying some degree of public shareholding. They will also have to put in 25% of their branches in rural areas that don’t have banks yet. This is a condition that is likely to prove lucrative as long as the new private banks know how to simultaneously do business with the base of the pyramid. A kind of “nano”, “micro” or “grameen” banking if you will. The Sahara Parivar owes at least some of its billions to what they call “para-banking” at the grassroots level.

Private entities would be keen on the opportunity principally to access cheap retail funds and the possibility of maximising profit by lending to the best class of borrowers. So here comes Reliance, Tata, L&T, Mahindra-already in it with Kotak, and probably a host of others including, we are told, brokers and builders.

 But let us remember also that all is not well with Indian banking. Non-performing assets (NPAs) are ruling at a record high. They are up over 50% year- on- year in the PSU banks at nearly Rs. 100,000 crores.

Private Banks tend to merge with others of their ilk when they start to go belly up. The existing clutch of private banks licensed mostly in 1993-94, provide quite a few examples. It is basically down to the big three of HDFC, ICICI and Axis presently.  A dozen were licensed, including the new Kotak Mahindra and Yes Bank, as of 2003-04.

And then there are the foreign banks, led by Standard Chartered. The foreign banks have done quite well with NPAs, if not with their own risky investment and treasury management decisions. But not so well with fraud. And banking fraud too has gone up about 42% and accounts for over Rs. 52 crores gone walkabout this year.

The state of our legal system, burdened and clogged by millions upon millions of pending cases, means that the perpetrators of all kinds of financial skulduggery will not come to pay for their sins in less than twenty years at a minimum. And that is only when the prosecution can construct a strong enough case and persist with it.

Actually, reform in one area cannot operate in isolation and is often bottle-necked by unfavourable conditions obtaining in another part of the system. And it is not advisable to modernise on the back of a sea of Government debt.

Our Government borrows massively, but mostly for current expenditure, salaries for its army of unsackable employees, rather than development.  No country with our frustratingly bad administration deserves to carry such a huge Government on its groaning back.

And even if we did put the borrowed money to development, it is probably the wrong method of financing growth. Our erstwhile colonisers, Great Britain, have just lost their AAA rating and now enjoy AA1; a notch less.

This is probably undeserved too, because Britain owes over a trillion pounds sterling, some 70% of GDP at present. Under the Conservatives, the UK is putting in spending cuts of 50 million pounds this year, but it is still not much when the projection is that by 2016 their debt pile will have grown to 96% of GDP.

No, we are much better served to attract FDI and FII to finance our growth and it is high time we realised it. Banking; bigger, better, and more numerous, can surely do its bit.

(786 words)

February 23^rd, 2013

Gautam Mukherjee

River Deep Mountain High

River Deep Mountain High

The Indian economy is stuttering so badly that it conjures up a whole host of metaphors. There is the story of the prodigal son for example, who squanders his health and riches before returning home to a loving welcome from his father. Like the hapless if compassionate father, we the people of India, can only hope for a better tomorrow, this being our very own country.

Other metaphors that come to mind are altogether more grim. Such as the medicines that are poured into seriously ill patients in an Intensive Care Unit, sometimes without obtaining much purchase. Consider that USD 8 billion has been invested by FII’s in the stock market in less than the two months of 2013, but the Sensex and Nifty and all the other indices are still unimpressed.

We once had an economy which was on an enviable growth path. Today, after some nine years of misrule by the UPA Government, we are aptly described by the “nation’s son-in-law” as: “mango people in a banana republic”. But an enormous part in the decline is due to a conflict between socialist and capitalist ideas in the Government’s thinking.

The periodic disdain with which growth is regarded by our policy makers is responsible for our bipolar progression. We want to spend the money in ever larger tranches, mostly on welfare rather than development, and forever grow the size of Government. But we do very little to earn more in any serious manner and care not at all about balancing the books.

Socialism always speaks of social responsibility and employment but never about productivity and profits.  The results are apparent in the collapse of the USSR, our own erstwhile 2% rate of growth, the time warps that are Cuba and Myanmar, the sorry plight of China till Deng overturned Maoism, etc.

In India, all Reform initiatives have never really topped the first flush. Namely, Mr. PV Narasimha Rao’s five brilliant years at the helm of the Congress-led coalition. Of course, he was simultaneously President of the Congress Party. But Mr. Rao was prime minister over two decades ago. The next bit of real growth came under AB Vajpayee, during his five years presiding over the NDA Government. The rest of the time, it has always been two steps forward and sometimes three steps back, or forget the forward progression altogether, just let’s spend the money on  vote- bank politics.

 And then there has been Diarchy at the top through the last nine years, a formula for confusion. With the Congress Party playing Socialist politics, and the Government trying feebly to get in at least a measure or two that faintly resembles Reform.

And so, we are on the brink of a Budget, a year before the general election. If this fails to enthuse, we can be fairly sure of being down-graded by the international rating agencies to “junk” status from the lowest rung of “investment grade” in which we find ourselves presently.

The current and fiscal account deficits are slated to worsen to 4.4% of a declining GDP. The GDP which was about to breach 10% nine years ago, is now limping at 5% and trending even lower.

This is so partially because of a futile attempt to control inflation and the RBI’s adamant moves in this regard, with the Finance Ministry both complicit, and missing in action. Inflation has worsened however, because most of it is imported via our petroleum which accounts for some 35% of our total import bill.  But the constant garrotting of liquidity and sky- high interest rates have definitely stymied business and industry.

So what can we expect in future? We can certainly look forward to a change of Government in 2014 and be clear that not everyone suffers from the malaise of inaction plus wrong action. Madhya Pradesh, Chhattisgarh, Goa, Bihar, Gujarat- all Opposition run states, have all done quite well.

The Centre, alas, has been an unmitigated disaster, with nothing to show for itself in UPA II. In the first term, at least there was the Civilian Nuclear Deal. In the second, there is just a procession of scams and corruption, civil unrest, high prices, terrorism, law and order failures, and rampant welfarism.

Elsewhere and ironically, there is a huge amount of money at near zero rates of interest floating around in the moribund Western economies.  A proportion of this money is always looking overseas, and could very well come to India for greater returns. What we need to do is attract large FDI and FII with a commitment to keep our business environment welcoming and consistent.  If this budget can do that, well and good. Otherwise, it becomes an urgent task for the next Government at the Centre.

 (787 words)

February 21^st, 2013

Gautam Mukherjee

Race to the Middle

Race to the Middle

The economic differences between the principal national parties is unintentionally narrowing. Witness the new reformist push from the Government at the fag- end of its tenure. And look at the declared and proven market- friendliness of the NDA’s tallest leader Mr. Narendra Modi.  If Mr.Modi heads the next GOI, we are sure to see fast- track development. Rashtrapati Bhavan, under President Pranab Mukherjee, is moving to the Right too, judging from the swift thumbs down to every murderer’s mercy petition.

Though the relentless rise in the retail price of diesel, petrol and LPG only shows that the Government is unable to sustain its subsidy regime. And the Assembly elections coming up should prove to be a referendum on the vast price rises that have resulted. But subsidies are a failed socialist idea that is of a piece with Welfarism. However, human nature being what it is, you cannot blame the public for getting used to benefits.Nor blame the people for being upset when those privileges are withdrawn.

But from a macro point of view, it is fortuitous that both sides seem to be racing towards the middle. Because it is only right- of-centre economics that has any chance of promoting the growth in GDP we need for our very survival. A survival narrative which is under threat from a retro-revival of the “garibi hatao” politics of the seventies, riddled nevertheless with a very UPA II style corruption in its delivery.

The split-personality, economically speaking, in the UPA II economic thinking, may be emanating from populist regional  parties in the coalition, but also the powerful,  if unelected, and somewhat extra-constitutional, National Advisory Council (NAC).

The NAC is allegedly filled with die- hard Communists, and welfare economists of the Amartya Sen type. They are credited with thinking up the Food Security Bill, for example. But implementing a scheme that will give subsidised food to nearly a billion people, with a 2% rate of growth in agricultural output per annum, is not at all realistic. And this combined with a 5% GDP rate of growth overall is simply unsustainable.

Where we can grow the economy substantially, in infrastructure and defence production, we are going very slow because of the political dangers associated with the allocation of mega projects. On Welfarism however, we are going much faster. But how do we pay for the bounty without a corresponding growth in earnings or are we prepared to go bankrupt?

Our income tax base is narrow, and the only people trapped in its rigours are corporations in the organised sector and its employees. Owners and entrepreneurs, farmers and the unorganised sector, have multiple options on their tax treatment, as do professionals of every kind.

On the eve of probably the last full budget before the country goes into general elections the Government is again thinking on how to grow the income tax base. But the fact is, income tax itself is not cost-effective in terms of administration.  A flat annual tax, modest in its ambition, no more than a few thousand rupees annually, on every citizen who is bank account holder, would probably yield more money in aggregate in a highly populated country like ours, than the immensely complicated tax provisions do.

But we have inherited our tax thinking from the British when they were dominated by the Labour Party post WWII, with its Socialist attitude that the rich should be brought down to more equitable levels. But, in the UK, people became tax exiles instead, because the rich always have options.

As for indirect taxes, we already have some of the highest incidence of it in the world. Practically all goods and services are taxed multiple times from the raw material stage onwards making them uncompetitive compared to imports. And yet, all this money in a large domestic  economy does not suffice. The reason is that we have a very inefficient fiscal administration, full of leaks and corruption. In addition, we refuse to let in foreign capital and methods on an unfettered basis in most areas of business. So, we end up practicing a negative, stick- in- the- mud policy, that continually makes matters worse. Meanwhile, the size of our inefficient Government keeps growing.

Our financial regulatory institutions, such as the Finance Ministry and the RBI in particular are often at loggerheads, and muddle policy direction at the best of times. Bold new ideas to break out of a chronic “poverty mind-set” are missing in action.

The next general election must bring about a drastic change in our economic thinking, or we can forget about becoming a developed country until we do so.  

(769 words)

February 17^th, 2013

Gautam Mukherjee

How to attract the money to India

How to attract the money to India

We need foreign investment, not in billions but trillions of US dollars, and can absorb it all. Of course the bulk of this appetite is for massive infrastructure creation and upgrades, and in the defence/nuclear power sectors, which are all very capital intensive.   

What works for us is the size and vitality of our domestic market which keeps our economy going.  This is also what makes India attractive to the global market which is largely saturated and stagnating in most of the advanced nations. But not even the most optimistic would- be foreign direct investor, going into brick and mortar businesses here, can expect quick results in India.

For most of the last decade and more, the bulk of the foreign money has come into the stock market as FII (Foreign Institutional Investment), because of its relative liquidity. But this is now much diminished, and consequently putting pressure on our foreign exchange reserves position as well as the value of the rupee. Our equity markets are not doing well with the economy slowing down. And there are only limited returns possible from our debt investments. Besides, the Government has placed caps on how much foreign money can be investment in the debt instruments too.

When it comes to FDI (Foreign direct investment), the major stumbling block is our own attitude. Despite the opportunities, both of circumstance and timing, staring us in the face, in practically any direction one cares to look, the Indian demand is only partially met at best. While everything is no longer in acute short supply as it was through our socialist years, we are far from the standards expected in a developed country.  We are not even up to the level of most other emerging economies, even though we probably have the greatest potential of them all.

Basic amenities continue to be in inadequate supply everywhere, and our capital New Delhi, probably better off than any other city in the country, still suffers from chronic electricity, water, sanitation, security, transport, housing, schooling, medical and other shortages.

As for the rest of the country, it is many times worse off. This is despite substantial improvements made over the years, but too gradually to have made more than a dent against the surging demand. And yet we aspire very clearly, if in the abstract, to join the leading rank of nations.

Despite being in urgent need of progress, we routinely lay down insulting and unrealistic conditions and codicils, as if we are still working for a colonial administration. We behave supremely confident owing to a conventional hubris that the world will meet our unreasonable conditions to gain access to our markets. Instead, most of the world refuses to play ball, preferring to go to smaller opportunities on more favourable terms, elsewhere.

 And those who do agree to our rules, happily flout or renege on the conditions they feel were unfairly imposed on them as a price of entry. We are hardly in a position to enforce our will in the international context, and possess very limited diplomatic clout, as is seen often enough. We would therefore be much better served if we made ourselves more attractive and welcoming as an investment destination.

In the midst of this characteristic bureaucratic obtuseness and political bungling of our prospects, the recent easing of conditions for single brand retailers wanting to come to India is most encouraging.We now allow 100% foreign ownership of single brand retail entities with no minimum investment threshold, unlike the 51% allowed in multi-brand after so much difficulty. And most significantly, we no longer insist on 30% of the single brand sourcing to be done in India from small players.  

Multi-brand is still largely a non-starter, till we further sweeten the conditions imposed, such as the minimum USD 100 million investment requirement. And till the virulent political opposition to it in many quarters abates. Making it possible for each state to let   in multi-brand or not as they please tends to spoil the plans the investors may have for the country as a whole.

 At present multi-brand players in India, such as Walmart, Carrefour, Metro, Tesco and Woolworth prefer their wholesale operations, where they are allowed to run cash-and-carry operations without any controversies, and own their enterprise outright.

In single brand however, by not insisting, we may have done ourselves a favour for once. Many foreign retailers may want local support on their own, either via consultancy, or outsourcing, or through joint ventures, but this is now up to them. Besides, once on the ground, they tend to end up manufacturing and exporting from India in due course, just as the automobile sector does, and source many components locally as the time goes on.

 This sort of backward integration will happen naturally because it makes good business sense. There are very few items or components that can be economically manufactured in the West today, but innovation and design continues to be a strength. So while things may come into this country made in China and other parts of South Asia to an extent, the lateral benefits that will permeate to the Indian work force will be, first of all, necessary employment, despite a high level of mechanisation, and a raising of standards and methods generally.  There will also be a greater sophistication and know-how in merchandising and marketing acquired as a by-product. The consumer will have greater choice and higher quality, very often at competitive prices.

The Indian retail market is estimated to be worth over USD 450 billion already, and is amongst the fastest growing in the world.  We cannot grow it by ourselves quickly to double its size, necessary to   meet pent-up demand, but with a gush of FDI we can.

IKEA, the world famous Scandinavian furniture maker, wants to bring in some Rs. 10,000 crores to start 25 stores in multiple locations, along with its own branded cafes and back-end infrastructure. IKEA’s proposal, with a series of subsequent applications from the company, is awaiting a final nod from the Indian Cabinet.

And the biggest single effort which has been passed since, is from French sporting goods reseller Decathlon, one of the biggest in the field, with an investment of Rs. 700 crores. This has been recently cleared by the FIPB. 

Others, like Fossil have won approval to make smaller investments. Several other big players, such as USD 3 billion worth leather goods major Coach Inc. from the US, and coveted branded fashion house Balenciaga of Spain, with substantial India plans, are waiting in the wings. So, how quickly can India ramp up the foreign investment in single-brands?

(1,104 words)

February 15^th, 2013

Gautam Mukherjee

There will be some changes made

There will be some changes made

The Chinese lunar Year of the Black Water Snake has begun on February 10^th 2013. Snake years have generally produced significant and enduring change. India has at least two festering problems that are in urgent need of resolution. And they are both an enormous strain on our limited resources.

One is the lack of spine shown in the handling of Jammu and Kashmir by successive Indian Governments. In fact, the indulgences shown to the politicians and public figures in the Kashmir Valley have made the situation increasingly complicated. The latest travesty involving Yasin Malik and Hafiz Saeed, posturing in Islamabad, is brazenly playing out before our very eyes!

The other, which tends to spawn ironic jokes in frustration, is the sorry state of defence related procurement and the indigenous defence manufacturing capacity. Arms dealers and scandals related to them are all too frequent, and the numbers involved are gargantuan. The 12 Agusta Westland helicopters ordered for VVIP duty and the  12.7% bribe attached amounting to Rs.  470 crores, is only the newest scandal in series.  And this is for just a dozen helicopters!  

On Kashmir, militarist Pakistan has held the Indian Government’s feet to the fire for over six decades. We are laughed at globally as the quintessential soft state where we take our Ahimsa very seriously. But Pakistan with its interchangeable troupe of state and non-state actors, has successfully implemented a policy of imposing “a thousand cuts” to keep us bleeding steadily.  

India’s cost of maintaining the status quo in J&K is classified, but it is obviously enormous. We have also lost more soldiers and allied security personnel in J&K “peacetime”, than we have in all the wars and skirmishes fought since independence.  

This even as India’s military hardware is obsolete, inadequate and in disrepair, despite the rampant corruption that attends every defence deal. We are unable to account for ourselves any better in 2013 than we could in 1962. Of course, the nuclear deterrent helps, and the nature of a vastly more interdependent world now. But it doesn’t stop China from taking advantage of our weakness ruthlessly.

China, on its part, now proudly manufactures aircraft-carriers and nuclear submarines. This is in addition to warships, guns, tanks, missiles, bombs, ordnance of various kinds, planes, helicopters, radars, drones, computer controlled systems etc.

India has been lagging far behind in this regard, mired in incompetence and inability. And it is forever paying through its nose for every acquisition from abroad.

But now, the privatisation of defence production is gaining momentum with a Defence Production Policy that does not necessarily give the Government- owned company the monopoly, or even a pole position.   After all, they have made a complete mess of it for decades.

The GOI has long wanted to produce 70% of its armaments domestically but has failed, perhaps due to the power brokers and arms dealers whom this cannot suit. After all, the Indian Defence Market is worth over 50 billion US dollars over the next five years.

But till lately, even though the policy to license the private sector into defence production began in 2001, there was little movement. But now, after the unveiling of the first ever Defence Production Policy in 2011, the Tata Group, Reliance Industries, L&T, Mahindra, and others are all taking a serious initiative.

The US procures most of its military machine from the private sector, and is a valuable source of  inspiration, technology and collaboration. But similarly, so is an impoverished Europe, a competitive Russia, and Israel, that sees India as a natural ally.  Much can therefore be expected from this in the coming years.

To solve the impasse in J&K, we need some audacity.  First, to abrogate its special status before the US moves out of Afghanistan and the jihadists can give us their undivided attention; and merge the restive state with Punjab. Pakistan has pushed into POK and Gilgit. China has changed the demographics of Tibet and taken over a port on the Arabian Sea at Gwadur. This is also how the West was Won in the US. So what are we afraid of?

This one act will rapidly change the demographics of J&K as it stands, distinguished for little beyond its nuisance value.

 J&K does have enormous tourist , leisure, sports and real estate development potential, leaving aside its carpet making and other craft skills, but only a fraction of this has ever been realised.

The seditionists and separatists that have long enjoyed hallowed status in the Valley should be firmly pushed into POK, along with all those others who would rather be Pakistanis.

We can put paid to this contentious security problem, wipe out the state from the map, and turn the place into the crowning glory to India that nature intended. All we need is Parliamentarians from all parties to come together to change the game once and for all. The world which regards Kashmir as a flashpoint will surely heave a sigh of relief.

(826 words)

February 12th, 2013

Gautam Mukherjee

Tryst with India's Economic Destiny

Tryst with India’s Economic Destiny

The GDP rate of growth under the UPA Government has sunk to a 10 year low of 5 per cent, a great deal slower than the rate of inflation, ruling presently at historic highs, and certainly in double digits at the retail level. So, in effect, the economy is shrinking, and heading towards a debt-trap fuelled by an ever-widening fiscal deficit caused by a spendthrift and adrift Government. And there are no fresh ideas to deal with the situation either, apart from taxing the miniscule number of rich people who happen to be amongst our most productive, and reviving other such long discarded Socialist shibboleths.

A ray of hope comes from the latest move from the EU to formally bring closure to their informal boycott of the Gujarat Government. It has come not a day too soon. This initiative follows individual engagement by the Governments of Sweden, Denmark and the UK over the last year.

Ironically, the EU denied the obvious economic motives for engaging with Mr. Modi, by saying the development was prompted by his “re-election”. Since this is Mr.Modi’s fourth consecutive term in office as Chief Minister of Gujarat, this fig-leaf of a reason seems a little fragile.

The fact is, several leading US and European companies have already breached the Rubicon and  invested in Gujarat, or, like the Germans, are firming up substantial plans to do so. This particularly after the various Vibrant Gujarat Summits held there bi-annually since 2003. As the best in India Inc. and several auto majors from around the world have long recognised, the doing-business-in-Gujarat story is just too compelling to be ignored or left out of.  

Besides, trying to punish India with sanctions and lock-outs post our going nuclear under former Prime Minister Vajpayee, was also finally seen to be counter-productive by the international powers themselves. There too, it took some years of recalcitrance, till matters were finally set right by President George W Bush of the US and all the other declared nuclear powers.

Gujarat is likely to benefit from the EU’s commercial initiatives. But, the truth is, the more pressing need is that of the Europeans and the Americans themselves.

While Gujarat is experiencing China- like double digit growth, most of the EU is tottering on the brink of bankruptcy. And recovery, such as it is, is tepid and plagued by the spectre of stagflation. These economies also suffer from vast over capacity and duplication.

This despite there being many large, tempting, once hallowed enterprises, now struggling and ailing or worse, all over  Europe, the UK, Canada and the US. They find themselves forced to conduct themselves much more democratically or face something of a “closing-down” sale. Volvo of Sweden is now Chinese owned. And Tata of India owns the iconic Land Rover and Jaguar companies in the UK.

Companies from India and China, with deep pockets and large banks willing to support them, have the additional advantage of huge domestic markets. And a hunger for, and appreciation of, the iconic brands from Europe and America. They have been out shopping for a while already, but some of their targets, such as the Tata attempt to buy out the Orient Express Hotel Group, are still thwarted by the quarries having trouble coping with a vastly changed world.

The other bug- bear, that has long prevented India from realising its potential, has been its inertia, its red- tape, its messy democracy and lack of commitment to growth. There has long been a gap between words and deeds that has repeatedly disappointed people wanting to do business with India.

But as Mr. Modi himself said at SRCC on the 6^th of February 2013, Gujarat has achieved spectacular results using the same system that has stymied other parts of India. This too, as undeniable fact, has impressed the Western world. Gujarat is something of an exception but its chief executive may well be poised to prove the rule.

Mr. Narendra Modi on the national stage can take forward the Nehruvian vision of India’s manifest destiny unveiled at midnight on 15^th August 1947. Jawaharlal Nehru himself saw Mr. Atal Bihari Vajpayee as a future prime minister, after witnessing the young orator speak rapturously, mesmerising his audience with his vision.

The ever popular Mr. Vajpayee did carry the nation forward. Our largely completed “Golden Quadrilateral” road network is just one of Mr. Vajpayee’s bequests to the nation. But who is the next man to whom such a baton can be passed? Who can do justice to the lyricism and promise encapsulated in the opening words of Mr.Nehru’s great speech? The Europeans seem to have cast their vote in favour of Mr.Narendra Modi. It is now up to the Indians themselves to follow suit.

(788 words)

February 9^th, 2013

Gautam Mukherjee

Modi's Manifesto

Modi’s  Manifesto

Mr. Narendra Modi spoke to a spellbound nation, and not just the students at SRCC, NewDelhi, 

hungry for his kind of positivity yesterday. And televised live as he was, by every notable news

Channel, the speech, and its clarion call, immediately dominated the internet, all the TV news and

Talk shows in the evening, and the front page of every newspaper today. And many of Narendra

 Modi’s critics and political opponents openly admitted that it was a very fine speech indeed.

This was Mr. Modi’s first speech to the nation via a lecture given to the students of SRCC, where he drew on the Gujarat model of, what might be dubbed Modinomics, as a formula for the “good governance” of the entire nation.

In Gujarat, Mr. Modi has, of course, commenced his fourth consecutive term in office. The speech spelt out the mantra of development as a panacea for all ills that face the country, and the methodology he proposed was the proven formulas he has successfully applied in Gujarat.

Interestingly, Mr.  Modi sounded quite a lot like former President Ronald Reagan of the US and Mrs Margaret Thatcher of the UK of the 1980s credited with the big push towards liberalisation in their respective countries. And quite a lot like Deng Zhao Ping of China, also from the 1980s, with his strong efforts to downsize government and government interference and promote the private sector in its place.

Mr. Modi said: “The government has no business doing business. Minimum government, maximum governance is my principle”. Given that the Indian government has grown very unwieldy, slow, bureaucratic, and colossally expensive to maintain; this outlook is definitely most welcome.

It is clear, with views like this from the Chief Minister, why Mr. Modi’s Gujarat is an all-time favourite destination of Indian business and industry, and may be well on his way to attracting the world. And this includes the Chinese, whom Mr. Modi sometimes sees as competitors to India Inc., to do business in Gujarat. Some 121 nations came to the recently held “Vibrant Gujarat” summit, post the elections, he said.

Modi’s development economics, applied with energy to the whole of India, he fervently believes, could indeed catapult this nation to the front ranks of the global community. India can become as successful as China is today, a little over three decades since Deng kicked off the emphasis on strong manufacturing and export-led economic growth, supported by tremendous infrastructure development. And without the fetters of  ideology of any kind.  

Mr.Modi, who made no reference to political postures or his Party in his hour long lecture, except to shun “vote bank politics”; spoke instead of the transformational effect of  “skill development”, “speed” and “work on very high scales”. To the students of SRCC listening with rapt attention, he said, “We need to internalise this”, as if he was addressing all young Indians everywhere.

Mr. Modi, currently bracketed in the context of Gujarat, even as a groundswell of support is calling for his induction onto the national stage, clearly intends to leverage India’s “demographic opportunity”, with the bulk of the population, over two-thirds, being under 35 years of age.

Gujarat under Modi’s achievement of a 10% growth rate in Agriculture is spectacular, when the national average has never crossed 4% in a good year. And Mr. Modi dwelled on the efficacy of his policies in this regard, and clearly implied that India as a whole could vastly improve the fortunes of its largely rural population.

Related issues such as irrigation to overcome drought, the production of abundant milk, the actual rise in the water table in Gujarat was touched upon, alongside many references to other countries and their achievements.

Gujarat has also become a major manufacturing state. It is growing rapidly in the services sector too with the expansion of its IT presence. Mr. Modi was at pains however, to emphasise a one third portioning on each of the three sectors of agriculture, manufacturing and services, for balance, interdependence, and one or the other coming to the rescue, in case of any cyclic downturns in any one sector. This is the Modi formula for the future too.

Ultimately however, Mr. Narendra Modi’s speech was more visionary than anything else, with his version of development economics echoing shades of old-fashioned mercantilism and nationalist development economics, as opposed to a free trade ethos that might, conceivably, even go against us.

Mr. Modi’s vision is clearly to take India to the top of the global leagues in the shortest possible time, and to the benefit of a maximum number of its people. That he laid it out with such passion augurs well for the future.

(778 words)

February 7^th, 2013

Gautam Mukherjee

The Conundrum of the Weak versus the Strong

The Conundrum of the Weak versus the Strong

There seem to be several prime ministerial aspirants for the 2014 general election within the top echelons of the Congress party. Most notably, there is Finance Minister P.Chidambaram.  He denies it strenuously but he is not alone in this regard.

Should Mr. Rahul Gandhi follow his mother’s lead and refuse to accept the “poison chalice”; there will be several contenders. And what will matter most is any candidate’s equation with mother and son. But even this is nuanced in favour of Rahul, the inheritor of the dynastic mantle. So let us hope he doesn’t pick a light-weight, chosen principally for his pliability.

From the point of view of the educated middle class urban citizen, who will have a significant impact on an estimated 200 parliamentary seats in 2014, or before; this is probably a happy prospect.

This middle class has developed electoral heft. It wants to hold the Government accountable on a wide range of issues. The media too have become powerful influencers now. More than 300 million urban people listen to what they have to say, in addition to over 600 million rural folk who have gained massively from connectivity and upward mobility themselves.  The electorate is now both aware and demanding.

So to continue the day dream, you have top corporate lawyer and Harvard educated Mr. Chidambaram, of great hands-on experience of governance at the top. Or you have Urban Development and Parliamentary Affairs Minister Mr. Kamal Nath, also a Union Minister for decades now. Mr. Nath, urbane, suave, well- liked by all parliamentarians, has turned principal trouble-shooter for the UPA since the elevation of Mr. Pranab Mukherjee.  Either of them will make excellent prime ministers given the chance. They are articulate, well-educated, sophisticated and modern in outlook. They are known to favour pragmatism and reform; and are well regarded internationally.

The worry would be if a candidate was chosen by the Congress only for its unquestioning loyalty to the first family as, it was perceived, was the case with former President Pratibha Patil. That she broke the glass ceiling for gender equality into that highest if ceremonial office is something of a subsidiary benefit.

Mr. Rahul Gandhi, his elevation to No. 2 in the Congress Party hierarchy notwithstanding, may not relish the switch to power with ultimate responsibility for everything. He cannot, if PM, duck out of sight for months, but must be on the job 24x7 with the buck stopping with him.

The PMship is an altogether more thorny business than being VP of the Party. He would be at the head of an unwieldy and restive coalition. This is undoubtedly a far cry from the comfort of untrammelled power without accountability for either governance or party performance.

This has served mother, son, son-in law, and sister rather well over the last eight years of an operational Diarchy. That Diarchy has never worked in India even under the British may have a lot to do with explaining the drift in both the economy and governance that we have been witnessing. But we may be in for more of the same should the UPA form the next Government. Except that the Congress Party too may not be in the best of health under Diarchy.

Besides there is the simple, if embarrassing, dogma  of palace politics. When the UPA loses an assembly election or there is a national issue in a mess, including the prevalent massive corruption, it is never the fault of the first family. This even though the family has been more or less prominent in the election campaigning and the strategy development that precedes it.

This includes, as far as the office-bearing mother and son are concerned, the important matter of picking of candidates and the distribution of tickets. In addition there   is quite strong influence in the distribution of portfolios and posts in Government and associated bodies too. But when the results come, the first family is never criticised for the failures, but is invariably praised, fulsomely, for all successes.

There is every likelihood that Mr. Rahul Gandhi, confronted with the possibility of losing to Mr. Narendra Modi in a presidential style parliamentary election,  that must cobble together and hold a coalition, demonstrate and keep a majority etc.; may cry off. He may see wisdom in adopting the philosophical position of renunciation of the crown in favour of a proxy.

Of course, while there is a ground swell of support developing for Mr. Modi, most notably from the VHP and the Akali Dal in addition to sections of the RSS and BJP; there is no settlement of this issue as yet. And the issue of the prime ministerial candidate, with BJP’s embarrassment of riches in this regard,  is not nearly as pressing as removing BJP’s “untouchability” first.

Indeed, Mr. Nitish Kumar and JDU’s objections to Mr. Modi’s  possible candidature should be used by the BJP Parliamentary Board to sweep the “communal” image of the BJP out of the door and down the  street!

The 177 million plus Muslims of India constituting over 13 per cent of the population will exercise considerable electoral power. They are no longer automatically anyone’s captive vote bank. And they are open to being wooed by the BJP if the party and its supporting Sangh Parivar can see the wisdom in doing so.

New BJP President Rajnath Singh’s recent reaching out to the Muslim community is a clear step in the right direction. And because he is a trusted RSS lieutenant, this initial gesture holds promise of the BJP and the Sangh Parivar shifting from  its entrenched positions.

And then, there is the news of SP supremo Mr. Mulayam Singh casting his hat into the ring. This underlines the point that the regional parties may be in a position to dictate terms to the Congress and indeed the BJP, after the election.  

The Dalits who constitute about 16 per cent of the population are also turning increasingly mindful of their rights and entitlements. Together with the Muslims they account for a full third of the population. And the changing fortunes of the political parties indicate that these people cannot be used  cynically without getting anything substantial in return.

 It is therefore obvious that there is a great opportunity for any formation that offers real benefits to this massive constituency and forms a “rainbow coalition” with other groups. This is not to suggest massive doses of welfarism, but development. Only in development is there dignity and a future for the downtrodden. The remaining 66 per cent of the rich, middle class and poor of this country too are longing for good governance and development that touches all.

(1,106 words)

February 4^th, 2013

Gautam Mukherjee