The Glue Without A Clue

The Glue Without A Clue

The bad news on the economic front keeps rolling out like a juggernaut and goes down the drain, as just so much waste. And alongside are some appraisals of Mrs. Sonia Gandhi’s 15 years at the head of the Congress Party, both from home and abroad.

Not one assessment, apart from the hagiographies from Congress courtiers and what the press call “stooges”, have anything particularly nice to say.

They talk of her peculiar exercise of supreme power without responsibility. They plainly say that Mrs. Gandhi is the most powerful person in India, and the prime minister is not.

In the end, the best achievement of the Congress President is that she provides the “glue” that keeps the Congress from splitting up into many self-important pieces. At least this is the consensus of the commentary.

But the fact is, the now 66 year old “High Command” rules both the Party and the Government on a de-facto basis. So much so, that 80 year old Prime Minister Manmohan Singh, divested of any real responsibility for his actions and pronouncements, has indicated he might be up for a third term beyond 2014, if the opportunity presents itself.  

But Mrs. Gandhi has already had quite an innings. From the famed “renunciation” of the prime ministership in 2004, to the recent upliftment of her son to the Vice Presidency of the Party, she has kept the primacy of the Gandhi family intact.

But over the last three years or so, there has been a huge imbalance between emphasis on expenditure and income. The expenditure is designed to procure votes from the poor for the Congress Party, using the machinery and money of the Government. This may not be right ethically, but it has been greatly, and irresponsibly, enhanced.

The cavalier attitude to the income of the Government though is so prominent, that that the entire emphasis of the Finance Ministry and the RBI has been to try and contain inflation rather than promote growth.  

First class economists and strategists have had to suspend judgement and toe the High Command’s line in this regard.

Mrs. Gandhi not only runs the Party in terms of every appointment, every “ticket”, every shuffle and sacking, all without accountability, but also dictates Government policy via the National Advisory Council she chairs.

And this means dictation to the prime minister and the cabinet with ideas developed by a band of ultra-leftists that constitute the NAC on a nominated basis.

And her son, Mr. Rahul Gandhi, an avowed believer  in  “meritocracy”, has recently indicated he will accept both the Prime Minister’s job and that of the Party President, as it is no longer a good idea to have two centres of power. His spokesperson Mr. Digvijay Singh has just played cat’s paw in this regard.

But then, as the outspoken Justice Katju, the maverick Chairman of the Press Council and former Supreme Court judge says, democracy has been imposed on a feudal society here, and has ended up, he implied, a bit of a farce. He says he does not vote personally because others vote their caste etc. just like so many “sheep”.

And hurrah, Rahul Gandhi, a man who has hardly ever addressed a press conference, plans to speak to the business classes at CII shortly. We will, at last, possibly hear his thoughts on business and industry. Let us hope they are serious thoughts though, because Mr. Gandhi does like to keep it  as simple as possible.

The first family of the UPA, including contributions to most songs from sister Priyanka and bro-in-law  Robert Vadra, has nevertheless ruled, in  the complete sense of the word, during the last nine plus years.

The “family” has even micro-managed many Government decisions, but always, like Polonius, from behind the arras, in a manner that subverts the very meaning of transparency and democracy.

It is a style of functioning that  gives illustration to Justice Katju’s meaning of feudal, even imperial, with an army of courtiers ready to jump on any criticism of this insult to the intent of the Indian Constitution.

Meanwhile back in “Dole Raj”, no facts are allowed to interfere with the roll-out. MGNREGA which has consumed Rs. 170,000 crores and counting since inception in 2009, is a mess; with wages paid to poor people accounting for only 20% of this sum. All the rest has gone to leakages, corruption and middle men.

We now  have the Food Bill and the Homestead Act waiting in the wings, with the former already passed by the rubber-stamp of a Cabinet. In Congress circles, it is accepted MGNREGA won the 2009 elections for UPA II, and so, these two new babies are expected to deliver a third consecutive term.

This country is being driven into becoming a bankrupt “banana republic” just as Vadra said; with high-spending welfare policies that refuse to worry about fiscal responsibility. The single minded zeal to achieve re-election is all.

This glue does not brook criticism. And the script says that the economy is about to get better, has bottomed out and will be back up to 8 or 9% per annum in growth within another couple of years.

The idea is to appear to spend plentifully on the poor, those vividly described “mango people”, and pocket the electoral payoff. If this fails to materialise, and things actually go from bad to worse in the next couple of years, then it is due to the incompetence of the successor Government.

There will be a tussle, in the coming days, between this welfare based socialist election campaign, and the development economics of the challenger from Gujarat.

May the good glue stick and the bad one come unstuck.

(945 words)

March 31^st, 2013

Gautam Mukherjee

The Congress Scorched Earth Policy

The Congress Scorched Earth Policy

Watching the reckless way in which the UPA Government is increasing welfare expenditure while income falls like a stone; one has to wonder at the underlying strategy. After all, the Congress Party heading this ruling coalition, prides itself on understanding governance better than all others. It has had cumulative decades in power.

Right-wing economist Mr. Surjit Bhalla, wrote a scathing indictment, calling the UPA’s economic management “disastrous”. This was in a recent Op-Ed piece in the Indian Express, which he ends by saying that Mrs. Sonia Gandhi who runs not only the Party but de-facto, the Government as well, may have ended up killing off the 128 year old Congress with her rampant Welfarism/Socialism.

Meanwhile, the dreadful economic facts pouring out from every survey and analysis seem to bolster Mr. Bhalla’s prognosis. Business and Industry has slowed to a near standstill, inflation including food inflation is shooting up, investment has stopped, the stock market is sinking,  the fiscal deficit has rocketed up to an all-time high, FDI has dried up, domestic demand has fallen drastically, growth has halved, exports are languishing, the rupee has depreciated at least 20%.

More relentless bad news is projected by non-partisan observers both domestic and foreign. Everyone is horrified by the profligacy except the seniors in the Government who continue to assure the public all is well and going to get better.

But is there a method in this madness? The UPA is hoping that the huge populism of the Food Bill and the Homestead Bill on top of all the subsidies and welfare programmes running presently will bring back 2009.

Then, the corruption- ridden MGNREGA caper is supposed to have delivered victory to them. So what if it has cost the nation some Rs. 1,70,000 crores with more than half the amount, Bhalla estimates it to be about $14 billion, siphoned off? Besides, the programme is faltering, only a fifth of the total spent paid out to the recipient poor in wages. It is certainly not a great success on the ground. But did it give Mrs. Gandhi UPA II?

So there is an attempt to pull off an encore.  But if UPA is shown the door in 2014, the Congress led Government may want to ensure the economy will be so ruined, that the successor Government will not last either. This particularly because of the populist compulsions of coalition politics.  The successor Government will inherit empty coffers, huge indebtedness, promises to deliver on, and an all-round fiscal mess.

This is a classic scorched earth policy, generally employed by retreating armies on the march. It says, in electoral terms, if I don’t get back in, whoever does will rue the day!

The BJP led NDA, most likely to form the next Government, is going to face huge economic challenges. Fortunately for the NDA, they are in power in a number of key states.  This will stabilise the aftermath to some extent.

In 2014, the real electoral battle is between Socialism’s non-delivery and disastrous economic performance under the UPA; and Development Economics, with a glorious track record in Gujarat, being promoted by the NDA. If this is polarisation of economic approaches, then so be it, and high time too. The bleating about growth without jobs and inclusiveness is fraudulent beyond the rhetoric.

The current UPA allies are disillusioned by the step-motherly treatment meted out to them by the Congress Party and are looking for alternatives. If the NDA makes them comfortable they may well switch sides.

Some like SP’s Mulayam Singh Yadav are not averse to the BJP while hoping to form another Third Front, but will such a front have the numbers? But who can argue with the benefits that will accrue from big ticket development?

With the advent of Mr. Narendra Modi into the parliamentary board of the BJP, it may be time for the principal Opposition to draw in more allies into the NDA.

The Trinamool Congress may be ripe, and the BJD too. Both SP and BSP could join up in principle, but only one can in practice. Ditto the equation with the DMK and the AIDMK.  Since Mr. Modi enjoys a personal equation with Ms. Jayalalithaa, the AIDMK is more likely to sign on. State by state, Modi must reach out.

Divisive issues such as the Uniform Civil Code, the abolition of Article 370 in Kashmir, Hindutva, Mandir and other majoritarian grandstanding,  needs to be replaced by Mr. Modi’s development plank converted into a battering ram. Development needs to be targeted and applied like a balm in minority heavy areas and elsewhere alike.

The Congress loves to call Mr. Modi a polarising figure. But the fact is, Gujarat’s growth has been most inclusive and more productive than in other places. This is beginning to be acknowledged by key Muslim groups in the state who are coming out in open support of Moditva.

Big, medium and small Business and Industry are solidly behind Mr. Modi. And the BJP have recently won even municipal elections in Muslim majority areas.

There is absolutely no truth in the kind of paranoid scare-mongering being promoted by the Congress in order to cling to yesterday. And Law and Order under the UPA has sunk to an all-time low while terrorism is running riot.

Some people are questioning the basic patriotism and integrity of various senior functionaries of the Congress Party and Government. The open looting that has replaced governance in a procession of scams ranging from the thievery allowed during the CWG, the multiple defence scams, the 2G Scam, the food grains scam, the water scam, the coal scam, etc. make you wonder whom this Government is actually serving? What happens to the High Command when this daylight robbery is going on?

The UPA’s nearly ten years in power finds both the country and the UPA in near ruin. How it came to this pass with supposedly competent and experienced people in the Government is quite a mystery.

The Congress Party speaks proudly of its “glue”, in the form of the inviolate and Peronistic High Command, while sneering at the BJP’s democratic  “infighting”. It only goes to show what happens when the glue itself is clueless.

Put charitably, the Congress Party is practicing the politics of nostalgia. It is hankering after a jingoistic and anachronistic throw- back to its glory days of single party near- dictatorship with appalling Soviet style Socialism.

It is now the job of today’s electorate to wake up to present-day reality, of aspirations, of modernity, of prosperity and growth, and sweep away the tired propagandists of empty promises and routine betrayal.  

(1,099 words)

March 31^st, 2013

Gautam Mukherjee

And The Walls Fall Down

And the Walls Fall Down

The last bastion is under attack. The big white hope of economic resurrection, that phoenix to rise from the ashes, is India’s domestic engine of growth.

It has always been the idea of robust and reliable Demand that is the best thing about the “India Story”. And this demand projection is overwhelmingly domestic.

Till now, domestic demand has grown, generally in double digit percentages year- on- year, varying from sector to sector. It has surged, fuelled by evident and pent up demand, the latter driven by earlier cumulative supply deprivation.

This phenomenon is what has made us attractive to every peddler of goods and services from Tipperary to Timbuktu, hiding at the same time, a thousand embedded and endemic sins of inefficiency and delay in the Indian way.

Demand in the Indian economy has been routinely reckoned to be robust for several decades to come, because we are woefully short of infrastructure and modern amenities. However, goods and services have started meeting expectations. Still, we are far away from the prerequisites of a developed nation.

Exports account for just 25% of GDP in round figures. This includes IT at nearly 8%; while merchandise exports are 17.7% within this mix.

There is only modest market share growth in IT exports, about 9%, and value addition too, but profit is declining from a heady 25% to 30% before 2008 to about 10% to 12% now.

Despite this, the logic is impeccable. India has a billion point two in population. India has a 60% population between the ages of 15 and 35. China is ageing. Europe is both broke and geriatric, and accounts for 300 million souls with a negative birth rate and at least 30 million unemployed.

America can, and by default is, boosting numbers and vitality with Hispanic immigration. Obama used this shrewdly in both his election victories, because the demographics, and with it, the attitudes are changing very substantially.

South America and Africa are, as yet, beautiful works in progress. The Asia-Pacific is largely developed and now coming relentlessly under the shadow of Chinese domination.

But BRICS is faltering too, Brazil, Russia and South Africa have growth rates in the 2% to 3% band, India is between 4% and 5%, and China too is not going to see double digits very soon either.

But things are likely to get worse for us. Home grown ratings agency CRISIL RESEARCH says Indian demand is to slow even more sharply.

India Inc. Revenue growth will decelerate to 7.5% in the fourth quarter of this financial year, from 17.5% for the corresponding g Q4 last year.

CRISIL reviewed 28 sectors of the economy, excluding banks and oil and gas, and this is the projection.  Everything that is investment-linked will decline further. So capital goods, construction, vehicles, tyres, auto components, steel, are all falling.

And this is partly happening because of the shameful mismanagement of the economy. CRISIL says administrative delays, high cost of money, huge inflation are all causatives.

Information Technology is down, but it is better off than manufacturing. So is Telecom, and Entertainment, on the back of greater digitisation and its cost savings. But no one’s balance sheet has much of a wow factor to it today.

Unless the Government revives investor sentiment with rapid developments both in policy and on the ground, this scenario is going to get worse. We need massive investment now. Otherwise, some sectors will descend into negative growth territory.

The choking of growth, after all, was a deliberate policy carried out to contain inflation. The effort has failed in its objective but has strangulated growth alright!

Business confidence going forward is lower than it has been for the last three years according to the NCAER Survey. And shareholder returns have, in any case, been declining ever since 2008-09 according to a Financial Express Survey.

There is very little the Government seems   to be doing to arrest this terminal decline despite the Prime Minister’s wish to revive “animal spirits”. Of course, no sooner does Mr. Manmohan Singh declare something, one of his ministers or the High Command decides to contradict him.

Consistency of policy therefore be damned in the UPA, with its dual centres of power. We are not likely to revive anything in the months left to this weakened Government, and ditto if UPA is returned to power.  

Across the aisle, if Mr. Narendra Modi is brought in to lead, his expressed strong support for business and industry and economic growth will certainly deliver the goods.

Let us hope the BJP, its affiliates and allies, plus the electorate, realises it, and does what it takes to raise him to the Prime Minister’s post.

(773 words)

March 28^th, 2013

Gautam Mukherjee

Messy Business

Messy Business

The Prime Minister, the President, Indian Union Ministers and junior ones, senior bureaucrats, trade body heads, even captains of business and industry who are shanghaied into delegations, go abroad routinely, and expensively, to tout the India story. Brand equity tends to beggar comparison, but advertisements do not a reality make!

So the results are meagre, because there is little done to fix the back- office functioning of a country that is immensely difficult to work in. Not only that, we take delight in taking ideological, bureaucratic, even uncaring anti-business policy positions, eroding the wealth of our companies, while the Government exudes supreme unconcern.

Take for example the fact that mid-cap stocks, that represent the bulk of Indian  business and industry numerically, all clocking in at between $ 2 to 10 billion US in market capitalisation, have lost 90% of their stock value  per a recent news report; with little hope of recovery in a tight bear market.

They have effectively been reduced to small- caps, and our publicly held financial assets economy has therefore shrunk. Is SEBI, the RBI, the Finance Ministry, The Planning Commission, The Ministry of Commerce, any arm or leg of Government, at State or Central level, doing anything about it? Have they even noticed?

Consider also that Large-caps, meaning those with a market capitalisation of between $10 to $200 billion are really not all that numerous in a $1 trillion sized official economy.  So the depth of the market is decimated and sequestered yet again with no policy reaction whatsoever.

Who is responsible for this precipitous decline? Is it their own shabby entrepreneurship? Or is it a very challenging macro environment with high interest rates, difficult liquidity, high commodity prices, inflexible labour laws, massive taxation, utilities both expensive and inadequate, high transportation costs, bad infrastructure, etc. etc.

If Japan took the world by storm once, as did Taiwan, and now as China is, heading towards becoming the No.1 economy according to OECD, they did not do it without tremendous Government support. It was a veritable partnership.

It is not as if we Indians cannot do it. Narendra Modi’s Gujarat is an example of our own ingenuity and entrepreneurship, with the State helping business and industry, including agriculture and agro-industry, to flourish and grow.  

That is why Mr. Modi is lauded by top business and industry leaders all over the country. But oddly, at the Centre, there is a concerted effort to debunk the achievements of the Government of Gujarat and some feeble attempts to claim credit for Modi’s achievements by saying he is harvesting what the earlier Congress Governments had sown, absurd as this sounds.

The fact that such progress has not been replicated anywhere else, is enviously glossed over. There are small gains which are spun out, minute policy adjustments are advertised as further reform, but the net results have been moribund and inadequate.

Recently, the Economic Affairs Secretary,  Mr.  Arvind  Mayaram went to Washington to be told by US investors that doing business in India was “messy”.

This despite India’s attempt to show- case its new found  Reforms zeal. Mr. Mayaram tried hard to convince his audience of the Government’s commitment to spurring growth and investment, cutting subsidies and the deficit, the whole nine yards of intent. But the US investors were not convinced.

It is very difficult for India to be taken seriously by any but the very brave and determined. Mr. Mayaram talked of $ 20 billion in infrastructure investment approvals, but we know as Indians, that this need not mean very much on the ground. At best, a fraction of a fraction of this investment will see the light of day in the projected time framework. 

The lack of consistency in Government policy is probably the most damning macro problem.  And the readiness to mislead and misrepresent is almost dishonest.

In the recent budget the Finance Minister P.Chidambaram probably over- estimated income, under- estimated expenditure, over- optimised the effects of welfare, and left all the whopper stuff, as in The Food Act and the Homestead Act, in the “coming soon” trailer.

Economists that favour market economics, such as Mr. Surjit Bhalla, routinely pour scorn on Government computations, statistics, assumptions, and indeed, the policy.

We will, most probably, have to wait for the outcome of the next general election for any real change.

If the right- of- centre Mr. Narendra Modi leads the next Government, expect progress and real growth.

If not, more of the same but with bells on; because then it will be seen as a vindication of the Leftist doctrine being pushed currently as if the life of the UPA depended on it.

(773 words)

March 23^rd, 2013

Gautam Mukherjee

A Zephyr Of New Ideas For India

 A Zephyr Of New Ideas for India

Mr. Narendra Modi, consciously addressing an audience of sophisticated Indians and the world beyond, demonstrated considerable tech savvy and comfort  with its possibilities today. He was the first Chief Minister invited to speak on Google’s Big Tent Activate Summit 2013 event for India, part of the series being conducted around the globe.

Here was a silver-bearded young man in his sixties, talking technology with Guinness Book Record achieving ease. And this is not hyperbole, because Modi is indeed entered in the book for using 3D holographic technology for the first time, for such an application. He addressed 53 election meetings at the same time, in what he now called “different geographies”, during his winning 2012 campaign to rule Gujarat for the fourth consecutive term.

As Modi’s 18 plus minutes of address covered how he has employed the internet and land surveying technology to improve the water recharging and ground water levels in Gujarat, the revolutionary virtues of two way and interactive communication now made possible via the internet, using GIS technology to fine tune fund allocations to hospitals, and so on, he gave vibrant meaning to Bob Dylan’s enigmatic line that said: “Ah, but I was so much older then, I’m younger than that now”.

Speaking in accented but reasonably fluent English, Mr. Modi,  grown from an RSS Pracharak and a modest OBC background, into Gujarat’s celebrated three terms completed and counting Chief Minister, he began by quoting Alvin Toffler of  futurist  classic Future Shock fame.

 Specifically, Mr. Modi spoke of Toffler’s 21st century definition of literacy which is not just being able to read and write and being educated as such, but having the mental dexterity to “learn, unlearn and relearn”.

Modi quoted former President Bill Clinton also, an ace communicator, who has called the Internet “The new  Town Square”. Modi  Indianised the concept to “Nukkad”, all the while reminding one of the sweeping vision of a historic  game- changer like current President Barack Obama.

There were, inevitably, some clever speech written lines, such as the very quotable “IT plus IT is equal to IT”, but the sentiments it stood for, bore the hallmark of Modi’s progressive vision for the future of India and its people.

Modi has, it is evident, not let up on his campaign for the leadership of India ever since his first nationally broadcast speech at the SRCC in Delhi just over a month ago. 

It is clear he fervently believes that the Gujarat model of development is ideal for the rest of India and he wants an opportunity to implement it.

And increasingly, the warm reception to his ideas is indicative of the fact that larger and larger numbers of Indians are heeding his call. But the subtext seems to say people are beginning to regard Narendra Modi as something of a saviour, a messiah come to rescue India from the mess created by the UPA over almost ten years of corrupt and inept misrule.

Modi spoke of “direct democracy” via the net, and the value of “informed citizens” and said it was time to “perform” and not just “promise”. 

This is a new and accountable zephyr, this unfolding Modinama, developing like a gentle summer wind on the threshold of the festival of colours.  

Narendra Modi fully intends to harness more and more technology towards better governance, but this he has already demonstrated in Gujarat. There is greater connectivity, precision, time- saving, interactivity and efficiency there as a consequence.

The bottom line, in Modi’s own words: “the crux of politics lies in connecting to the people”. Narendra Modi has done so very ably in Gujarat. He is now in the process of doing likewise throughout India and overseas.

(612 words)

March 21^st, 2013

Gautam Mukherjee

The Times They Are A Changing

The Times They Are A Changing

India is now the largest buyer of conventional weapons in the world, practically all of it on an imported basis, routine corruption scams notwithstanding. We are buying to modernise our armed forces, because we face two threats in our theatre, from Pakistan, a perennial problem,  and much more powerful China, a more mysterious  rival for domination of the region, even a counterbalance to the present world order.

Our own arms industry remains at, or near, the starting gate, despite frequent professions of intent from the Government in general and the present Defence Minister AK Anthony in particular. Meanwhile China makes its own nuclear submarines and aircraft carriers.

Union Minister AK Anthony, an abject Gandhi loyalist, whom some say could be considered for the post of PM if UPA forms the Government yet again; is sometimes called, without apparent irony, “Saint Anthony”, for being, it is said, reasonably incorruptible.

But despite his unquestioning loyalty to the Congress High Command, from which he draws his power and stability, he has succeeded in doing absolutely nothing to kick-start our own arms industry in the private sector, let alone bring it up to speed. Possibly because arms deals are amongst the biggest sources of payola for our rulers and their henchmen.

China meanwhile has just displaced the UK as the 5^th biggest arms exporter in the world, and this is principally on the back of its exports to Pakistan, which accounts for a fulsome 55% of all Chinese arms exports.  The shrinking of British stature is not surprising and of a piece with its loss of influence globally, but the sophistication and range of  the Chinese armaments industry is impressive for an essentially home grown programme.

Whether Pakistan pays for these Chinese armaments in hard currency, or even on the nail, is another matter. But China knows how to extract its pound of flesh from its client state and proxy India baiter anyway.

Besides it makes Pakistan hopelessly beholden, particularly with the US in the process of pulling out of Afghanistan.

China’s inroads into Baluchistan and a warm-water port on the Arabian Sea bordering the Gulf, POK, in the upper reaches of the Hindu Kush, and even into Afghanistan, with Pakistani good offices preceding, is a form of payment too.

There is also the diplomatic dividend of a tight alliance with the only Muslim nuclear state at present.

Having said that,  China does have its own future to think of, which calls for thinking on a much bigger scale, and out-of-the box enough to realise what worked in the 20^th century will not suffice in the 21st. In fact, this is evident already even as we are only in the second decade of the new century.

Quantum exports to the EU and the US are not what they used to be for China, and unlikely to pick up anytime soon. There is only feeble current growth, and a massive overhang of debt that threatens to collapse many of the constituent economies of the EU. The old borrow and spend model is largely discredited and is being pursued with near zero interest rates and easy monetary liquidity only to prevent seizure from sudden withdrawal. All of this applies also to the US with the proviso that it is very much bigger as an economy and more likely to be able to right itself.

Africa too cannot pay China enough in currency terms, but can, and does, hand over large tracts of natural resources that can be developed on very favourable terms. But that too costs massive money that China must provide for the infrastructure development before it can cash in.

The Iranians and other bits and pieces of the Middle East such as Syria, parts of Libya and Egypt and some of the “Jasmine” states leaning towards a radical Muslim hue, essentially hostile to the West, can buy Chinese goods and armaments. But these are largely barter deals. Most of it is in exchange for oil, but their populations, and consequently their appetites, are not too large.  So the balance of trade suffers in any case. 

Asia and the Pacific region is fragmented, over- fished by too many vendors, and that really leaves only India.

The brand new leadership in China, Li just now, and Xi  a little earlier, realise that they need to ramp up the commercial engagement with India which has a vast market of young people and huge pent up demand for very many things China is good at. And this means real confidence building measures with a country that feels inferior after the 1962 licking and ever since. But yet, we could certainly use Chinese collaboration in many areas.

Take for example our quaint railway system, fit only for a remake of “Jewel in the Crown” or  Richard Attenborough “Gandhi”. There is nothing remotely up-to-date about the Indian Railways even though it is ostensibly large enough to warrant ( debatable) a separate budget presentation every year.

   

Our infrastructure building takes forever to build, and the Chinese by contrast are experts at executing mega projects in record time.

For India, it is important not to feel militarily threatened. We have been witnessing an encirclement via our South Asian neighbours, Nepal, Sri Lanka, the unreliable and forever delinquent Pakistan, even Myanmar and Bangladesh, but it is starting to dawn on the Chinese that this policy  is not serving them very well. 

All these client states cannot fill Chinese coffers. They need China much more than China needs them. But India could enrich China, as it can all the countries of the West currently down on their luck.

This can become the basis of a very different kind of entente cordiale between the two Asian giants that account for nearly half the population of the world. 

It is no wonder then that President Xi  is looking forward to meeting our PM Manmohan Singh on the sidelines of the forthcoming BRICS Summit in Durban next week.And why President Xi and Premier Li, both representing a change of the power guard in China, have been signalling a desire to boost bilateral ties with India, which they call one of the “most important”.

It will take us Indians a long overture to trust the Chinese, because we have been there before in the Panchsheel days, only to be roundly thrashed by Chou En Lai and Mao. Besides, proxy Pakistan is in no mood to pipe down. And yet, the future demands a rapprochement that can benefit both countries much more than the present state of wariness.

(1,093 words)

March 20^th, 2013

Gautam Mukherjee

Cyprus Bailout To Dip Into Russian Loot

Cyprus Bailout To Dip Into Russian Loot

Why so much Russian off-shore money is stacked in the EU’s Mediterranean outpost of Cyprus, rather than in traditional havens like Switzerland is a bit of a mystery. Is it really the “Trojan Donkey” for the Russians in the 17 member EU? Between straight deposits and Russian companies registered and operating out of Cyprus, the exposure is in the region of $60 billion.

Of course, higher returns on investment due to Cyprus’ soft laws, low taxes and offshore haven ways, have something to do with it. Switzerland offers security and stability but not very many of the other bells and whistles.

But there may be quite a few Russian oligarchs getting ready for a haircut and shave on its Cypriot exposure. After the recent Cypriot parliamentary resolution refusing to tax their bank depositors, Cyprus will be looking for a bailout from the Russians instead.

This could work for both. Vladimir Putin has already expressed anger and outrage at the unprecedented demand for Cyprus to pay part of its own bailout requested from Brussels, about half the money needed. And Russia has helped Cyprus in the past and might do so again particularly if Cyprus offers a stake in the development of its offshore oil and gas fields.

The spotlight on Nicosia reveals that of the $27 billion foreign money stacked in Cypriot banks, largely seeking to be laundered on a no- awkward- questions- asked- basis, $19 million is Russian. The laundering does draw India into its ambit because of a treaty with Cyprus, India imposes a low withholding tax on profits in Indian debt and securities, and Cyprus takes no capital gains tax at all. Most FII money into stocks however comes to India via Mauritius.

   

The EU is offering $ 13 billion (Euro 10 billion), to keep the key Nicosia banks from collapsing after they became the 5^th country in the Eurozone to ask for a bailout. But instead of footing the bill in its entirety, Brussels has asked Nicosia to come up with 5.8 billion Euros on its own.

This initiative may be emanating from EU’s leading economy, Germany, getting a bit sick of bailing out country after country, albeit after asking for painful austerity measures.

Meanwhile, Cyprus banks are closed while the negotiations continue, but there is already an ATM- based- run. This could get very much worse once they open, later this week or early next week, irrespective of the deal hammered out.

This is quite a dangerous prospect, as copycat bank runs could materialise all over the weaker sections of the EU as depositors try to get their money out of the Government’s reach.

The idea to tax the deposits is not Cypriot.  But this manoeuvre is setting a precedent that is making the rest of the EU jittery too. It is unsettling as an idea because sovereign debt is meant to be sacrosanct. It is traditionally backed by s guarantees and is not meant to be liable to being deleveraged by unilaterally grabbing a slice of the deposited money.

Depositors are, after all, lenders to the banks and the Government. They are actually the White Knights, the bedrock savers that underpin every economy. And they are not the ones who ran up the bill and liabilities at all. They are not usually the borrowers, and not the ones who actually owe the money. 

Since bank and sovereign liabilities all over the EU are at a frightening overhang of 320% of GDP  it is not just the depositors who need to worry.

In the US, the debt liability burden accounts for 83% of the entire economy. This US debt too is a very large sum, amounting to trillions of US dollars, almost in a 1:1 ratio, meaning some 13 trillion dollars in a 15 trillion dollar economy. But at least the debt doesn’t lap the economy three and a quarter times!

However this plays out at this time, the problem is so severe that neither the US nor the Eurozone are going to be in the clear any time soon.

Having said that, the admirable thing is that the economies of the West have been kept afloat ever since 2008, despite such massive challenges. There are, over five years later, signs of economic revival all around, at least on the current account, and in terms of a mild employment revival.

The management of the humungous debt however is the legacy of the past, and will cast a shadow far into the future.

And it is this fact that will shift the balance of power relentlessly to BRICS. And more particularly witness the establishment of China, which is highly solvent, and possibly India, if it changes its deficit financing ways; achieve global economic leadership.

(788 words)

March 20^th, 2013

Gautam Mukherjee

Greetings from Stalinistan

Greetings from Stalinistan

The banks are stressed, according to the CII survey recently released. They have massive non-performing assets (NPA), presently the highest they have been in six years. This, combined with  the newly imposed, higher  mandatory capital requirements, will seriously erode their profitability at a minimum.

The much talked about Food Bill, a key thrust area of the UPA Government, on its way to becoming a food guarantee law under  an act of parliament, will place an additional 38.6% burden over and above the currently budgeted  Rs. 90,000 crore  subsidy for next year.

This will, it is reported, shoot up the subsidy to Rs.1,24, 747.1 crores at present prices, for next year alone. Not only are more people being included under its provisions, but there is a demand that the highly subsidised prices be maintained unchanged for 3 years, irrespective of the expectedly higher procurement prices of  the essential grains and cereals covered.

In addition, there is another, equally ambitious programme being developed for providing  guaranteed rural housing to the poor at state expense.

The banks are stressed mostly because of forced loans to economically weaker sections.  And the growing subsidies, transferring from petroleum products towards the public distribution system and so on, threaten to bankrupt the nation.

But, at the same time, it must be acknowledged that they seek to help the poor of this country and that is indeed a laudable objective. The only quarrel that anyone can have with such undeniably lofty ambition is the fiscal responsibility that should accompany such largesse. This is a new phase of affirmative action to help the bottom third of the population, but because it is being done so recklessly by way of straight giveaways, it is likely to cause considerable harm to our viabilities.

That many of these schemes will not fructify in the year or so that this Government will be in power before the general elections, makes them squarely aimed at the electorate. They are designed  to provide campaign talking points, and hopefully restore the UPA to power for a third consecutive term.

But in the event the UPA is not returned to power, as acts of parliament, these programmes will have to be implemented by any successor Government. Of course, it is yet to be seen if these initiatives pass into law in the time remaining.

This kind of institutionalised populism was very au courant in Stalinist Soviet Russia too where the mighty USSR was bankrupted eventually. And while defence spending was also part of the problem, everyday developments, shortages, failures, collapses, run- away inflation, came from the seeds of destruction sown by policies expected to deliver the longed for “dictatorship of the proletariat”.

But instead, the mega programmes largely failed in the implementation, or in the results they yielded.

Judging from the fate of the other huge poverty alleviation schemes instituted   by the UPA Government, these new ones too are likely to be mired in massive corruption, misappropriation and delay. A leopard cannot change its spots just on the basis of a wish, and it is doubtful if the efficacy of such programmes is the main objective at this time anyway.

But regardless, there is an attitude pushing these schemes with an unheeding arrogance. Any kind of Stalinism, post, pseudo or neo, invites sudden death if you disagree, dissent, or arouse suspicion, at least within the Party.  And yes, everything is political in Stalinistan, including economics, and the colours pink, red, green and saffron.

And the prerequisite to running Stalinistan is a simple hold on absolute power with plenty of government agencies that can be used to intimidate, subvert, deny, delay, banish and hound.

Also, the brazen ability to concoct reasons and justifications for the most outrageous circumstances while distracting attention by pouring scorn on and calling all opponents and rivals as many names as possible.

Our Stalinists are often sentimental, given to emotional outpourings that purport to bleed for people at any provocation. Or, like a haemophiliac, for no reason at all, except of course the inability to coagulate blood.

So which atrocity should we speak of first? Is it the sharp rise in new subsidies? Or is it the rampant money- laundering in several private banks? Or shall we talk, yet again of the food inflation? Or laugh at the red herring of becoming a leading manufacturing nation if it manages to account for 25% of GDP?  Or the soft attitude to terrorism, mayhem, corruption, insurgency, diplomatic snubs, law and order collapse? Or should we talk of the Opposition’s failures instead?

(763 words)

March 18^th, 2013

Gautam Mukherjee

The Modi Mantra at the India Today Enclave 2013

The Modi Mantra at India Today Enclave 2013

Narendra Modi speaking to the nation, has something of the legendary cleaning out of the  Augean Stables about it. Hercules too was not expected to succeed by King Augeas who gave him a seemingly impossible task, but he did.

Hercules innovated boldly, redirecting and channelling two nearby rivers into the entrance of the stable, flushing out all the filth via the exit.

 Mr. Modi too, has, over the last 12 years, performed a development miracle in his home state. And he has done it using the same administrative machinery and system as all the others had available to them. His short film on Gujarat’s progress, used at the start of his lecture, demonstrated this almost overwhelmingly with a mass of impressive statistics.

And Mr. Modi’s tone also has a missionary zeal to it, something of Jesus chiding the Pharisees, particularly for their self-serving hypocrisy.

Narendra Modi was relaxed and comfortable in his skin at the Enclave. He did not disappoint. Everything about this occasion was somewhat special. The live audience was august and distinguished, comprising of business and industry leaders, foreign diplomats, professionals, journalists and also, some politicians. They were attentive and more than willing to hear him out. And the entire occasion was broadcast live by Headlines Today TV Channel, and will no doubt be reflected on plentifully elsewhere.

The ringing introduction by Mr. Aroon Purie, Mr. Narendra Modi’s own far from self- effacing speech, and the question and answer session that followed it, was revealing of his vision for the country, and exciting in its forward looking implications.

All of it had the ring of a full-fledged campaign event akin to an American style presidential town-hall meeting, but amongst the high and mighty of the land. It covered a great deal more ground than his speech at SRCC or his address to the Indian diaspora in the US.

It particularly laid out the typical Modi vision of privatisation, good governance, motivation of the administration, people responsiveness, accountability, effectiveness, innovation, and development as a solution to all ills. Mr. Modi also laid out his vision of a uniform polity without special privileges for specific groups and ethnicities.

There was wry humour too, and a jauntiness that denotes confidence in the future of India as part of his vision.   He also clearly indicated that he was speaking his mind with the tacit, if not explicit, backing of his party the BJP.

And the audience in the packed hall listened to Narendra Modi with a degree of fascination, and dawning recognition that this man could well be leading the nation come 2014.

No one else in the Indian political firmament speaks in quite the manner Mr. Modi does, with his tremendous emphasis on change, transformation and a conviction in the power of good governance and development. In Mr. Modi’s case, the lofty vision is not merely rhetorical, because he always returns to the track record of Gujarat to drive home his point.

Mr. Modi reiterated here, as he has before, that he saw “Vikas” as a general solution to all the country’s problems. Not only that, but he did not hesitate to welcome privatisation in various fields, including, for example, the Indian Railways. 

Mr. Modi brought an enthusiasm to his exposition at the Enclave’s Leader’s Lecture that is definitely rare in the mouths of politicians, particularly one that has ruled his state since 2002. He demonstrated an urge to innovate at the national level, transferring the same positivity he has been able to infuse in his state. 

A key takeaway from this unusual man of the hour, is his emphasis, not on endless legislation but on action to deliver results. The fate of India’s progress could well hang on his advent into national politics, and a success at that level that is no less resounding .

(633 words)

March 16^th, 2013

Gautam Mukherjee

The Black Swan of Indian Reform

The Black Swan of Indian Reform

 Mr. Nassim Nicholas Taleb postulated  the Theory of the Black Swan, initially to explain unexpected financial market events in 2004, and then revised it in 2007, to encompass life- changing phenomena such as the advent of the personal computer,  the internet, the dissolution of the Soviet Union, 9/11 etc. His ideas were much praised after the implosion of the financial markets and the real economies of the US and Europe in 2008.

Black Swan is a metaphor for the outlier and unforeseen phenomenon that has a profound effect on subsequent events and leads to considerable hindsight analysis later. The rear-view mirror analysis too is often inaccurate, as it tries to resolve intellectual and conceptual conflicts by blunting edges and forcing square pegs into round holes. And by claiming the blind-sided events were anticipated after all!

The Black Swan of Reform in India, hiding in plain sight, is the essential conflict between “big government”, and the empowerment of the private sector. Now, big government is more or less embedded in our DNA, enshrined as it was, into our economic thinking from the very commencement of the Republic of India.

 And empowerment of the private sector, collaboration with it, with foreign entities/companies, induction of superior technologies/methods, infusion of capital that we may not have, or be able to allocate as a State, etc. lies at the heart of Liberalisation and Reform.  The implication is - shrink big government which is not ideally suited to enterprise. But, the net effect of Indian Government trying to author Reform is that it comes to the table with a built-in urge to subvert the process, aided and abetted by a media and public that agrees.

This plays out in many ways. Many State and Central Government initiatives to disinvest are criticised for selling the assets for less than their market value, with dark aspersions cast as to the motives.  This is by political opposition, a media and a public, weaned and fed on Socialism, protesting the devolution of wealth and power to the privates - perceived as rapacious, immoral and anti-people. We fail to realise that this attitude comes from long conditioning to be anti-elitist, almost anti-prosperity, even for ourselves.

Similarly, when Industry is competitively attracted to a region by offering sops and land on long lease/ sale on very advantageous terms, there is a hue and cry. The thrust of which is that the State or Central Government Agency concerned has betrayed the interests of the tax payer and squandered public assets.

The fuss completely ignores the idea that Government needs to promote business and industry and facilitate it to make money, generate employment and extend prosperity to larger numbers of people on a viable and sustainable basis.

That the Government is not necessarily meant to regard all enterprise with suspicion, and uphold the principle of social justice that any form of unbridled capitalism is presumably bound to ignore. That it may be unfair to deny, often without justification, that private enterprise has any ideals of Trusteeship or Welfarism in its conduct of affairs.

 Even as we ignore much real evidence of excellent transformation in people’s lives, their environment and possibilities, brought about by our leading business houses such as the Tatas, and indeed many others in the top ten or twenty groupings, such as Reliance, Godrej, Bharti, Mahindras, ITC, Birlas, Infosys, etc.

Is the Government then meant to conduct good business on its own account or stimulate and catalyse other, essentially private enterprise, to do so? Has the Government succeeded in conducting good business except in a monopolistic context where its inefficiencies cannot sink it?

There are many countries clear in their policy direction in this regard, including those in authoritarian regimes in the Middle East. They are quite happy to mentor and spur the private sector. They offer help in various forms, from soft loans to infrastructure, including land, electricity, water, access roads and railhead connectivity, nearby airports, assistance with finding export markets via bilateral agreements and trade treaties and so on.

India however, tends to revert to its “Command and Control” or “Licence-Permit Raj” ways at the first opportunity. After all, most of our top bureaucrats and senior politicians come from our earlier Socialist era. It was a time when we were closely allied to the USSR and overlaid many of their centralised planning and administrative methods on top of a liberal parliamentary framework based on the Westminster model with US republican overtones.  

So Reform promoting legislation still gets interpreted in a manner so that very little of its original intent gets past the trawl-net in the execution. And thus, we have the two-steps-forward-three–steps-back gait of progression on most of our initiatives.

(785 words)

March 14^th, 2013

Gautam Mukherjee

The Economics of India First

The Economics of India First

Mr. Narendra Modi recently told the overseas Indian diaspora that his idea of Secularism involved the notion of “India First”. He explained it in terms of putting the interests of the country above sectarian interests and pressure groupings. What then would this mean in economic terms?

Modi says he has only been re-elected again and again because of his track record on development. Many criticize even this, saying there has not been the kind of job growth one would desire alongside such spectacular absolute growth in investment etc.

But looking at employment growth as a percentage of the total population of the state is misleading, except to illustrate we are still a long way from eliminating poverty.  Different approaches to the statistics however, throw up different highlights, all competing for attention.

The Indian Express reports that Gujarat hires more people via the government run employment exchanges than any other state. The Labour Bureau of Gujarat under the Union Ministry of Labour claims Gujarat and Daman & Diu have the lowest unemployment statistics today.

Other, less sympathetic sources, quote the National Survey done pre-budget 2013, and talk of stagnating percentages in overall employment. The opponents of Modi’s development model carp about the paucity of poverty alleviation measures for those in the poorest quarter of the population. This, without however pointing to the actual success of such bounty anywhere else in the country!

By way of unfavourable comparison though, look at the way the rupee is plummeting because of huge declared and undeclared deficits caused by profligate Central policies. It could touch Rs. 60 to the US dollar soon, and then plummet towards Rs. 75 because of the cost-push inflation raging. There are too many given- away rupees, our new form of want-to-buy- votes   rural liquidity, chasing the usual goods and services, made more expensive by rising fuel, commodity and raw material prices, much of it imported.

Food inflation too, is topping 20% in urban areas at the retail level, and even wholesale price indices compiled by the Government, put it into the double digits. And the food bill accounts for 50% of many household expenditures, or even more in the case of the poor.

Government statistics ironically show rural food inflation, where the Government has propped up farm produce prices, at some 13% too. This food inflation, and general price rise of everything else, is devaluing our currency, in tandem with massive uncontrolled borrowing, as the Government hurtles towards a debt trap.

None of this welfare spending is productive in strictly economic terms, though welfarism has always justified itself in terms of alleviating poverty and human misery. But well-intentioned as this might be, it always ends up, doing the opposite, because the laws of economics do not condone a free lunch, and charges for it with compound interest.

Most people agree, for example, that Mr.Rajiv Gandhi was being wildly optimistic all those years ago when he said some 15% of welfare money actually reaches the intended recipients. Things haven’t got any better, to put it mildly.

This is partly due to corruption, and is partly a consequence of lazy targeting of the truly needy. The Government seeks to rectify this now via initiatives like the Aadhar Card and direct cash transfers. Let us see how this fares, but it is just so much charity, and ultimately unsustainable economically.

And more so in a country with huge absolute numbers, and an economy no bigger than about a trillion US dollars officially.

Welfarism works up to a point in countries with tiny populations, such as Norway and Kuwait, with huge resources per capita. It does not work in socialist France particularly, and did, only partially in Hugo Chavez’s Venezuela, fuelled by the petroleum wealth. And it has failed completely all over the Communist world.

But the growth in Gujarat, based on investment in productive enterprises, is solid; with over 10% GDP growth per annum, and over 10% unprecedented growth in agriculture. A set of figures impressive by any standards, especially since the base figures of the year before were not insubstantial in real terms either.

Contrast this with Bihar, where Mr. Nitish Kumar’s Government also claimed an 11% growth in GDP over the year before, but there the base figures are abysmal for a state with the size and natural resources of  Bihar. 

Statistics, we can see, can be made to dance any which way, but the picture on the ground must match.

All development- based growth is welcome though, because it makes a real difference, and applied at a national level, could catapult us forward. The economics of development is what will put “India First”, and carry all castes and communities with it.

(781 words)

March 10^th, 2013

Gautam Mukherjee

Averaging out the Odds

Averaging out the Odds

Gurcharan Das in his prismatic book from 2009, meditates on  “The subtle art of dharma”, meaning very many versions of the truth based on one’s perspective and changing circumstance.

In “The difficulty of being good”, Das holds that the key weakness of Capitalism is “Greed”, while that of Socialism is “Envy”.  It is of course difficult to say whether India is Capitalist or Socialist, but we do exhibit both traits in ample measure.

Being that something other, has its own complications. And it can’t be wished away under a veneer of genteelness. The weakness of the indefensible must then be obfuscated using statistical jugglery.

At least, this is true if you belong to the UPA.  And you won’t let any other version, for example the CAG’s,  put you off your propagandist course. Instead you will heap calumny on the CAG, and impute motives, and even see its head as allied to the BJP.

Prime Minister Manmohan Singh recently used a misleading game of averages. He used it as the centre piece of his reply to the President’s speech. Of course the whole effort was to try and deflect attention from the economic mess his Government finds itself in.

He compared the  UPA’s nine years in power to the NDA’s six, before triumphantly concluding that despite the current downturn, UPA had managed an average of 7.9% per annum, while the NDA never exceeded 6%.

It can always be counter-argued that the first term of UPA, from 2004 to 2009, in which the GDP rate was higher, was essentially riding on the momentum created by the NDA .  There was also the little matter of the near collapse of the Western economies in 2008.

But what could have been an opportunity for India to seize, as China has since 2008 - was frittered away. India deliberately choked off liquidity, resulting in a slowing of business and industry. A slowing that has now matured to a full stop, with no investments being made towards future growth.

And no attempt is being made even now to set things right. Most of the media seems to accept this presentation, and a majority of the voting public can’t understand economics anyway.

But Conservative  observers, both Indian and foreign, have concluded that a Government that expects to cut the fiscal deficit to 4.8% of GDP from the current5.2%,  while raising overall budgeted expenditure by 16 to 17%, is unlikely to succeed.

For the moment however, the international rating agencies such as Moody, Fitch etc. are giving the budget a chance to work.

The main thrust may well be, though it wasn’t spelled out, in the reduction of subsidies generally and on petroleum products in particular. But the saved money, certainly hundreds of thousands of crores, will go straight out again, on the welfare programmes, while sharply stoking inflation via the transportation sector.

But by the time all this comes to proof, the year will be over, the general elections will have taken place, and it will either be someone else’s problem or the newly triumphant UPA will not have to worry about it anyway.  

Truth be told, the country’s finances are in dire straits, because we are spending much more than we are earning. And if this keeps up, we will certainly drop out of the reckoning in BRICS and start resembling any of the profligate borrow- and-spend Western economies that are going to be in some form of recession for decades.

This despite all efforts to cheer themselves up by a manic clutching at  straws. That is why Dow is rallying, ostensibly on some better employment numbers. But it is only a sympathy rally, to one that began in China, and took in most of the world.

The new leadership in China has announced a spending spree; on defence, on infrastructure, on manufacturing. And since China has massive reserves of money, there will be a knock-on positive effect felt globally. After all, China is called the Number 2 economy now, given its growth statistics, and not Japan.

But India is sliding off the map meanwhile, fading into the obscurity it subconsciously craves; with its developmental expenditure largely stalled. This,  while its Prime Minister stands in the Lok Sabha busy congratulating himself and his Government.

And he didn’t say a word on corruption, though Mr. Modi’s “deemak” remark alluded to it plainly. Defending the indefensible with statistics hasn’t quite figured out how to include scams in the averages. But perhaps next time the prime minister can run up statistics to say my  UPA scams are smaller than NDA ones. And hope to God that the public believes him in his desperation.

  

(774 words)

7^th March, 2013

Gautam Mukherjee

The Flight of Icarus: Millionaire to would-be Billionaire

BOOK REVIEW

 

FALLEN ANGEL   The Making and Unmaking of Rajat Gupta

Author: Sandipan Deb

Publisher: Rupa Publications India Pvt. Ltd. 2013

Price: Rs. 295/-

The Flight of Icarus: Millionaire to would-be Billionaire

Author of this book, FALLEN ANGEL etc. Mr. Sandipan Deb, is also a graduate of both the IIT and IIM, definitely the toughest colleges in India to get into; and graduate out of. Deb has also written another book entitled The IITians: The Story of an Extraodinary Indian Institution and How Its Alumni Are Reshaping the World. Yes, he likes very long titles and is very proud of the IITs.

Mr. Deb, as former Managing Editor of Outlook, Editor of the Financial Express, and founder-editor of Open, is expected to write well, and this book is very good indeed. Not only is it a page-turner but  is crisply written and well-researched.

Having said that, Mr. Deb, perhaps from a sense of correctness or IITian solidarity, refuses to take sides. This is a tale of an apparent enigma, but perhaps it is not such a mystery after all. Mr. Rajat Gupta is revealed as  an orphaned, self-made paragon of virtue, with a distinguished career, who nevertheless messes it all up in semi- retirement in his mid-sixties.

The question is asked again and again: did Rajat Gupta blot his copybook from a lust to join the league of billionaires? Answer: probably yes. He had long decades advising billionaires, but ended up with oodles of prestige but a modest asset profile of under $150 million. Not only that, the attempt to elevate himself to the billionaire club had a pathetic neediness about it, and lacked Mr. Gupta’s  customary unperturbed finesse. And so, it got him into the trouble he’s in.   

Were there any classic missteps on Mr Gupta’s part?  Oh yes, when he could have got away clean with a slap on the wrist, Mr. Gupta took the Government to Court over a small fine.  And the US Government taught him a lesson; proving the case against him, ruining his reputation, and convicting him, with a jail sentence to boot.

Gupta has had a long career in McKinsey & Co. after passing out of Harvard Business School. He rose to be voted in as Managing Director for three consecutive terms, till 2003. The Teflon, that apparently coated him, protected him, even as several firms McKinsey advised during his years at the helm, went down in flames. These included Enron, Kmart, Swissair, and a host of dotcom start-ups that went bust later, with whom McKinsey had shareholding in lieu of part-of-fee deals. But all the while, because McKinsey knew when to get out with its money, its revenues went up from $1.2 billion to $3.4 billion, in the nine years Gupta was Managing Director.

Gupta stayed an eminent person post 2003, young, sought after. He continued to advise various weighty entities, some in philanthropic areas of health and education, and sat on several boards, including that of Goldman Sachs.

And it was specifically the insider information on Goldman Sachs that Mr. Rajat Gupta allegedly supplied to Mr. Raj Rajaratnam of Galleon Hedge Fund, that led to his conviction and jail sentence and his Icarus-like plunge from grace.

This book also asks the question: did he do it on purpose? But once again Mr. Deb cops out and lets the jury, made up of working class New Yorkers, and Judge Jed S Rakoff do the dirty. And they decidedly pronounced him guilty, based on circumstantial evidence, yes, and on some damaging Government wiretaps.

Fact is, Gupta was clearly angling for a top job with Rajaratnam’s Galleon, at first with its to- be- launched International avatar, and hopefully later, in the flagship company itself. Mr. Gupta’s patrician dealings with the swashbuckling Rajaratnam, a multi-billionaire to Mr. Gupta’s $138 million in assets, over a decade his junior, put him at a considerable psychological disadvantage. It even lost him $ 10 million in bad investments.

But Mr. Rajat Gupta was no stranger to risky bets. But this time was different. He was playing with his own money, on his own time, staking his personal reputation. And he had hitched his wagon to a decidedly reckless player.

And so, when Rajaratnam went down, with a sentence of 11 years in jail for insider trading, it is not surprising that Mr. Gupta, despite his halo, caught at least two. Besides, both were betrayed to the authorities by quite a cast of henchmen.

In the unlikely event Rajat Gupta is let off on appeal in future, his career, what’s left of it, will never recover from this mauling.  The whole debacle could also be seen as bad luck, because it is certainly true  that many people have managed to get away with much worse.

But despite his decades in the US, Mr. Rajat Gupta is not really an insider. Neither is Tamil Sri Lankan Raj Rajaratnam. And Rajaratnam’s Galleon was probably seen to be flying the Jolly Roger much too blatantly, this while interloping, a long way away from home.

(809 words)

March 5^th, 2013

Gautam Mukherjee

The Puritanical Streak

The Puritanical Streak

The West has been convulsed periodically with bouts of extreme morality. And though this is not an everyday occurrence, some of its public probity laws are moored in this puritanical ethic. An uncompromising stance determined to rain retribution on the wrong doer. But this is at considerable variance with, and in contrast to, its own general behaviour and the beliefs that animate them.

In the US and the UK, countries we take a lot of our legal cues from; the public likes to hold public figures to a much tougher sexual regimen than it prescribes for itself. So, essentially promiscuous people, members of the general public, in a modern and permissive culture, will think nothing of pulling down a married aspirant to public office found to be straying from the path of fidelity.  

Similarly, the US laws on insider trading are such, that it makes you think the whole of Wall Street before contrition hit it in 2008, must surely be guilty of violating them. And yet, when someone is caught, he is not spared. This even if it is with the use of wiretaps in insider trading cases, not previously taken cognisance of in a US Court of Law.

And so Mr.  Rajaratnam, the flamboyant billionaire ethnic Sri Lankan boss of the erstwhile Galleon Hedge Fun d, was convicted and sent to jail for 11 years. And unless his Appeal gets him off, so will Indian Mr. Rajat Gupta of McKinsey & Co. fame, and various other parts, who stands both convicted and sentenced to jail too.

But it makes one feel sorry for both, and indeed other lesser associates who fell victim to the somewhat overdone Insider Trading Laws, because they were certainly not the exception.

Because inside information is almost the very thing businessmen employ to make their financial bets all the time. They spend time and money and influence acquiring insights. It is the quality of their information, albeit covertly and discreetly arrived at, backed by their ability to take risk, that has the potential to both make their fortune or ruin them.  

If this is so shocking, why do civilised nations have Intelligence operatives and Covert Operations experts at all? People who are specifically tasked with breaking the rules in pursuit of national objectives.

Almost every real estate acquisition, a repository of wealth,  especially that of land, is based on knowledge of the future development plans for the area. The earlier one gets in on the act, the greater the pay off. Even those who come into the secondary market soon enough are benefited. And yet, at the centre of such transactions, there are a small number of people acting on privileged information. Is this really wrong?

India is heading the same way as the US and the UK, as SEBI, our stock market regulator, seeks to tighten both Insider Trading Laws and Corporate Governance. The latter, by prescribing niceties such as Relationship Agreements between the promoters of corporations, even majority owners, in a public listed company, and their companies.

The idea, already implemented in the UK, attempts to restrict the influence of the owners in the day-to-day workings. It is a bizarre and prudish idea that has not helped the companies in the UK cover themselves in any special glory as a consequence. It also defies common sense.

The intention, of course, is to prevent owners from benefiting at the expense of diversified common shareholders. But Relationship Agreements of this sort ignore the blood and sweat that the entrepreneurs have put into developing their enterprises to public issue in the first place!

And if a majority owner is not to try and control his company, how can it be right for minority owners and independent directors and the like with no real stake in its survival to do so?

It is the stuff and nonsense of the puritanical ethic creeping into perfectly red- blooded enterprise, destined to put a spanner in the works. This sort of unnecessary oversight often introduces suspicion where it does not belong. For us in India, we think we are adopting a “global practice”, but may find we are buying nothing but trouble and strife.  Besides, as to its efficacy, anywhere, including India, the jury is bound to be out.

Similarly, India is seeking to tighten its Insider Trading Laws, and again SEBI is undertaking an exercise to determine how best to do this, for the first time in five years.

Bottom line, it seems to some that we are complicating our lives, just because others in the UK and the US have already done so. And we truly ought to worry about aping the ways of a system that has failed.

(782 words)

March 3^rd, 2013

Gautama Mukherjee

Dynastic Enterprises Limited

Dynastic Enterprises Limited

Several commentators have pointed out that the legitimately elected Lok Sabha has nevertheless turned into a dynastic club.  Electoral Politics is an expensive business, and having a “family firm” in play makes all the difference. Second, and sometimes third generation politicians assume their “family seats”, sometimes after the elevation to higher office, retirement or demise of the parent, and sometimes not.

Editor-in-chief of the Indian Express Mr.Shekhar Gupta, in a recent editorial, pointed out that the dynastic reach of each element of this progression threatens to run into each other like bumper cars at the fair. This has severely proscribed the pan-Indian appeal and vote gathering ability of the original “elected” dynasts, the Nehru-Gandhis.

But as without, so within; with quite a few lesser Congress dynasties also very much a part of the equation. They are there perhaps for their familiarity and assumed know- how , being to the manner born. Or as Mr. Gupta states, because there is no effective mechanism for a new entrant to make the cut. And a certain amount of lazy complacency. Fellow dynasts tend not to dwell on their raison d etre and rarely pose a threat to the High Command.

That this might isolate the comfy oligarchy from the people they presume to lead has not found any champions to its cause, except via the time- tested device of lip-service.

Mr. Rahul Gandhi did talk reassuringly of selecting and developing 50 meritorious people from the grass-roots in every Congress state organisation, each capable of becoming chief minister one day. But he presumably missed the irony of his own elevation to the Vice Presidency for little reason apart from his exalted lineage.

And neither did he say how long he expected the Party to take, in implementing his “Boys from Brazil” type plan of cloning scores of people who were chief minister material. Of course, the Brazil boys  were fictionalised DNA matched clones of Hitler. And I am sure Mr.Rahul Gandhi intends no such thing; for the lack of Hitlerian pliability, if not for any other reason.

Meanwhile, at present, this blatant dynastic carving out of the territory and political landscape will have profound consequences in the forthcoming Assembly and General Elections. The process has embedded itself and gathered both heft and momentum. Many a regional satrap intends to win in his home turf and leverage it to secure further spoils at the Centre. Others from prominent political families who may not garner enough to form Government at the state level while winning a few seats in the Lok Sabha, are equally diligent about using their numbers to extract benefits from any coalition. Both at State and Centre.

These fish, to extend the piscine imagery, like the Salmon and Hilsa, like to swim upstream.   Their dynastic ambitions, father and son/daughter/sometimes nephew/uncle etc., are in terms of catapulting themselves to both national and state-level power simultaneously. And there will be every option explored to see if one of their number cannot seize the prime ministership itself, given, if it comes to pass, the fragmentation of the election results.

The etiolation, of what Mr. Rahul Gandhi and others refer to as “inner-party democracy”, implies even greater changes in how the Congress Party will be run in the future. Particularly after Mrs Sonia Gandhi with her admirable grip on both the Government and the Party, inevitably, exits the stage.  

But gazing once again at the tip of the pyramid, the Gandhis, mother, son and daughter, and perhaps the problematic and somewhat embarrassing son-in-law too, can barely win, that too not without challenge from local scions, their seats in Amethi and Rae Bareilly.

Their real present value to the Congress Party has coalesced into their ability to  provide the cement of cohesion and the discipline of constituting a High Command. Curiously, everyone, from mighty ministers of great experience and ability, to the ordinary rank and file, accept  the authority of the Gandhis as the last word.

This even though it is debatable whether the Gandhi family has a vision for the economic and political progress of the country in 2013. They have an old- style hankering for an absolute majority, and ideas derived from  yesterday’s brand of Socialism. It is perhaps ironic that not many of Mr. Rajiv Gandhi’s modernising initiatives are taken forward with any great enthusiasm.

For the pressing matter of winning elections in the Congress Party, it is, and has been for some time, “every man for himself”, with the successful politicians having to make sure they nurse their constituencies.

 Of course, those who enter Parliament, even high office, via the Rajya Sabha, whether elected by sponsorship, or nominated likewise, do not have the sea-legs of a grassroots presence. They too are a general source of weakness and dependency in an already twisted political dynamic. Sometimes,   it can be argued, a weak central leadership, no longer able to “sway” the country, may prefer political non-entities to surround themselves with. This plays its part in the politics of sycophancy, with no objective thinking possible from such courtiers.

The plethora of competing vested interests reduces the national discourse in parliament to populism and vote- bankism. There is also the matter of many of them check-mating each other. The BJP and the CPM are less afflicted by this phenomenon, but both have suffered from a lack of focus as a consequence, with in-fighting more prominent instead.

Some regional parties with heads who do not have children or close relatives or “friends” to promote,  are nevertheless run like tight proprietorships. Every other recruit to the fold, however eminent otherwise, is reduced to a role in the chorus line.

Clearly then, The Congress Party, and by implication, large parts of the Congress manned  Government, is in a period of transition, likely to come into increasing prominence as the future unfolds.

Meanwhile, they see the demonising of the principal Opposition by calling them “Communal”, if possible every day, as their best bet for continuance in power. The Congressman’s rhetoric becomes even more shrill when he reflects on the very real possibility of Mr. Narendra Modi challenging the much weakened Gandhis, and leading the charge for a national alternative.

Despite a concerted effort to malign the development oriented Chief Minister of Gujarat,  the tide is turning in his favour. This more so, as the UPA has made a complete mess of the economy, poorly managed basic law and order, and seen the rise of corruption to unprecedented levels. Besides, the bachelor Mr. Modi, known for his probity, has no possibility of adding to the list of dynasts that seek to rule us in perpetuity.

(1,102  words)

March 3^rd, 2013

Gautam Mukherjee