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Friday, August 30, 2013

Lullabyes For The Nation




Lullabyes  for the Nation


The Prime Minister, under pressure to comment,  tried at last, to reassure parliament and the nation on the 30th of August after a month of humiliating and harrowing economic disasters coming thick and fast.

But as usual he had nothing to offer except a laundry list of excuses, unsubstantiated hopes and unconvincing assurances.  The PM is an admirable study in stoicism because nothing seems to agitate him except the occasional taunt from fellow octogenarian LK Advani.

The reformist finance minister of 1991 has been replaced by the stone -walling prime minister of the last decade. That it is indeed the same man, and not a clone, tells you what the passage of time and the pulls and tugs of circumstance can bring about.

Mr. Singh said that the government will take remedial measures to right both the currency and India’s economic performance.  He said that both the finance ministry and the RBI were on the job without a single remark on their utter ineffectiveness to date.

Manmohan Singh’s statement on the economy and his government’s plans to set things right in the Lok Sabha sounded more like an  elaborate alibi with its bare-faced and calm attempts to deflect blame on things beyond the control of the government of India.

The PM did not lay out any specifics on what he or his government is going to do about the crisis. But then, he has tried that before, garnishing his attempts at restarting reform with his ‘animal spirits’ remark months ago. But that too failed to produce any results besides spawning a fair degree of derision.

This time too there are many jokes doing the rounds, including the suggestion that Haryana be named Jamai-ka. Better to laugh, thinks the public, then to cry. But normally this kind of black joke as catharsis is the relief and remedy in tyrannies, dictatorships, Mr. Vadra’s banana republics, and failed communist states.  We must perhaps see where we best fit in.

But the PM gamely blamed the tension in Syria, and possible threat of a US attack on the country for India’s rising oil import costs, not, the precipitous fall in the rupee’s value, even though every rupee fall against the dollar raises our oil import bill by Rs. 8,000 crores.

 And America’s nascent recovery gets the blame for the plummeting rupee, along with a horde of other Ems, give or take a few percentage points.  That we have done worse on the rupee than all the other emerging markets, is also not remarked upon by our august one.

The PM also blamed the Indian’s insatiable appetite for imported gold to explain the growing CAD. That Commerce Minister Anand Sharma suggested we monetise just 500 tons of the some 31,000 tonnes of gold in the country for about $25 billion, was also not something the PM could ever take seriously.  Not when we are laying the blame elsewhere as opposed to looking for solutions.

Our domestic economy which has long been the source and arena of India’s growth is not mentioned particularly by the PM, except in passing, when it is this entity that has been crucially neglected by the present government.

It is the domestic economy, industry,  business, agriculture, infrastructure, that has ground to a halt because of government mismanagement. Even exports are languishing. Garments , lacklustre because of flat demand in the importing countries of the West. Diamonds, because the ‘ roughs’ cost more and more to import. Engineering goods, because of a paucity of projects abroad. Cars and buses, for the same reason.

Software is managing after a fashion, but is plagued by rising costs and insufficient value addition.

Consumption too is affected by a liquidity squeeze and much less disposable income due to inflation, lack of growth, and job losses. PSU Banks are groaning under the burden of huge NPAs. Fuel prices are rising daily. Inflation is climbing everywhere and goods and services are becoming ever costlier.

Salaries are stagnant, and business profits have turned into losses under huge interest burdens of massive debt affected by the sharp slow-down in off-take and revenue. Inventories are piling up and leading to distress selling at a loss. Nothing is doing well in India at present.  

However, the recent welfare moves such as the new Land Bill to replace the colonial 1894 act is a good and right step towards common justice for land-owners and farmers not seen since independence.

Instead, the bias always ran the other way from the abolition of zamindaris soon after independence leading to the ruin of many a landed family, to the amount of land and property any one person could own soon after that, the infamous land ceiling legislation, led to huge benami transfers and much grief too.

The persecution of the princes and the abolition of the privy purses in the crudest possible fashion was also of a piece with the bullying ways of the sarkar and how the government saw its role.

Industry and the property developers who are complaining now may therefore be better served to make up their minds to share some of their substantial profits with the owners of the land they want to build upon. When politics is on the move expect the voter to get it all.

The Food Bill, seen as another political imperative, may also turn out to be a boon in the long run. That is, if the government and its successors find it in their policy making hearts to spur growth to easily afford its largesse, and if they use its requirements to modernise its materials handling, storage and distribution mechanisms to serve people in the 21st century.

And if the needs of the Food Bill and indeed a burgeoning population, forces grater mechanisation and scientific cultivation/irrigation etc. in agriculture and transportation, to bring up productivity.

The business of living in several centuries past along with the current one must fade out from our psyches. It may amuse a few aesthetes but does the rest of us down. In some ways we are manifesting a new ambition with our Don Quixote like welfarism in the face of our financial decrepitude, and despite our slack and corrupt ways.

If such boastful promises are to be met, then concomitant actions must realistically follow. We may not even realise what we have let ourselves in for at present, but that does not perhaps matter. All is well that leads us to a favourable outcome. And all hail the new government that leads us into the light.

(1,086 words)
August 30th, 2013

Gautam  Mukherjee

Wednesday, August 28, 2013

Food Security Might Spur The Economy


Food Security Might Spur The Economy

How bad is the economy? Well, it couldn’t be much worse unless one thinks general bankruptcy at the sovereign level is an option.

Why is nothing being done about our crisis situation? The reason is that the government is concerned only about how to try and get re-elected right now, and fixing the economy is not going to help this objective very much.

The government believes the poor rural and urban voter, practically the effective voter list, does not understand economic issues beyond anything that affects it directly. Will they be proved wrong? We don’t, as yet, know.

So the concentration is, and has been over the last three years, on welfare measures. So now we have direct cash transfers using the Aadhar identification systems, the Food Security Ordinance turned bill, and so on. Nothing else really matters. Business and industry can wait. The value of the rupee versus the dollar and other currencies is presumed to be of little concern and beyond the understanding of the poor voter being targeted.

Food inflation is definitely a worry, particularly for the urban poor, because it buys its food and cannot just grow it. And because it constitutes an important 40% of the voter list. But unfortunately,  it has failed to do much to contain food inflation. Still, it is hoped, giving away almost free grain to 75% of the population will assuage this problem as well.

Are there remedies before the economy is thoroughly ruined? In economic terms, of course, and always. But the political will is singularly absent. Probably nothing effective therefore will be done while this government is still in office.

But certainly once the new government is elected, and turns its attention to growing the economy afresh, much can be done. It will, however probably take a BJP led government with Narendra Modi leading it. This because he is the only one amongst the various prime ministerial contenders, in the government, the opposition, and the regional parties, who has declared his intention to revive the economy as his number one priority and has a track record in being able to pull it off.

The rest are all determined to “alleviate poverty” along the lines of the present government, and we cannot expect any worthwhile change in tack from any of them.

Unless that is, as a nation, irrespective of who forms the next government, we are forced to take dictation once again from the World Bank and the International Monetary Fund in return for loans.And they ram through all kinds of liberalisation and economic reform as they did in 1991. As a people we will benefit. As a country we will begin to prosper again if this happens even if we should have thought of it ourselves.

Mrs Sonia Gandhi meanwhile, has championed and inspired the passage of the Food Security Bill (FSB). At a minimum it will become a massive demonstration of her personal commitment to the poor and hungry. If it delivers the electoral dividend it is expected to, then single-handedly it will have succeeded to wash away all the sins of the UPA government over the last ten years, and deliver UPA 3.

Audacious in its timing, a few months before the general elections, the government orchestrated the numbers, within its own ranks, and by virtue of its outside supporters in the BSP and the SP. It was in a position to push the FSB through, with or without the principal opposition.  

But, not wanting to be left out of this act of considerable populist potential, the principal opposition and others have joined hands with the government to give the Food Security Bill a comfortable win in the Lok Sabha.

Because of this eager cooperation, the FSB will also pass muster in the Rajya Sabha, where the government is not so well placed. Not only that, the BJP, not keen on Congress stealing its thunder, has pledged to deepen and widen several of its provisions, declaring them inadequate to the intended task in its present form.

So who is worried about the economy which is so badly off that the currency drops a couple of rupees against the dollar on a daily basis?

It is left to economists, some people in the media and elder statesmen with little electoral ambition left, to do the cautioning and championing in equal measure. And well they might. 

The Food Security legislation, with its scope of works guaranteeing negligibly priced grain and other items at prices fixed extremely low by 2013 rates, will cost billions of rupees a year to sustain. The international press is jeering at India’s beggar thyself strategy to give away $20 billion in food grains per annum, when it is so close to economic collapse itself. But then, which peasant or labourer looks at what the international media has to say?

Every estimate on the FSB’s projected costs rises exponentially over the last one. It will cover more and more people as the time goes on by dint of population growth and inclusiveness. And it will be, unless there are the amendments and codicils our bureaucracy is adept at, inflation- proof to the consumer.

But it will cost the government more and more to fund and deliver, and is seen as a considerable fiscal burden by most expert observers. It is probably the largest welfare scheme of its type ever undertaken in the world, with a poetic disregard for the burdens it will impose on our already tattered circumstances.

It will be a major budget point every year as it rolls out across the country.  But since it is going to be a big challenge to fund it right from the start, while attempting to keep any grip on fiscal issues, it might well spawn a beneficial side-effect.

Many countries in the past have bankrupted themselves over their militarism, the USSR being the most glaring recent example. We might end up doing it in typical Indian fashion, where our reach, in almost every direction, ends up exceeding our grasp. But then again, perhaps not.

We must, if we want to be positive, look at our fiscal burden which accounts for around 4 to 5% of GDP at about $85 billion, with optimism. We must think we can definitely afford to feed all of our poor and hungry at state expense. We must demonstrate a confidence that is not altogether misplaced. But we need to bring the deficit down, and put the growth statistics up after the general elections to pull it off.

The FSB is not our only unaffordable burden after all. But because we have so many high ambitions and hopes, we cannot afford to stagnate like this. We have our pressing infrastructure building needs that call for trillions of dollars, our defence industry needs that need billions more, our space programme, our business & industry, education, health, social- welfare, you name it, we need much more money than we have.

All of these aspirations need to spur our growth, particularly when we act cavalier with all parameters of the economy teetering on the brink.  

But opening up the economy and pushing reforms in the name of the poor and their subsidised food may be just the political justification this hypocritical country needs. And so there may be method in the madness after all.

If economic growth is restored to near the double-digits, and sustained for a decade or more, there will definitely be enough to go around. India will once again be able to finance its modernisation, infrastructure development, defence programmes, alongside its welfare and much else besides, without flinching. Unlikely as it seems from the hole we find ourselves in, business and Industry could be booming afresh, and the story at the bourses and on our farms could turn rosy too.

India could once again be thought of as a leading economy of the world. Our adversities and excesses by this reckoning could spur us on and thereby save us from disaster. But only if we decide to pay some serious attention to the income side of the ledger as soon as possible. 

(1,351 words)
August 28th, 2013

Gautam Mukherjee

Monday, August 26, 2013

Is 2013 turning into 1991 once more?


Is 2013 turning into 1991 once more?

The engines of reform have indeed ground to a halt in 2013. What began in 1991, in the midst of an unprecedented economic crisis, is waiting to be restored in the midst of another.

The scale of the problems confronting the Indian economy are indeed larger now. But this can also be taken as a barometer of their success over the last 25 years. That we are unable to further promote the unshackling of the economy and the removal of more controls on its functioning is a telling point.

We are loathe to let go of our statist ways and march confidently towards a more competitive and open market economy. We cannot seem to do this without benefit of crisis situations that force our hands. We brazenly discount the benefits, the sea- changes wrought in our life-styles and possibilities today, almost all of which have accrued since 1991, and carp constantly about the shortcomings instead.

Our natural thinking and bias in the main is not towards things like globalisation, modernisation, market- led efficiencies and growth- led upliftment of the masses in poverty. We think prosperity polarises, and the rich get richer and the poor are left to their wretchedness. We don’t think market economics can get us elected.
Many of our left-leaning ideologues, politicians, bureaucrats and intellectuals feel that economic growth that is not inclusive is not worth having. They do not believe in the trickle- down effect, nor that prosperity raises all boats. And they refuse to believe market economics, with its innate competitive spirit, can take the lame and halt with it!

And yet, the statistics of the growth years since 1991 show that poverty has in fact been reduced, and much more substantially, than in the long socialist decades that preceded it.

As the population has grown to over 1.21 billiion people, many more from the illiterate working class, traditionally working with their hands, have been raised into the middle class by dint of their progeny being better educated.

The children of the illiterate poor have learned white- collar skills that they have deployed to earn a better paid and dignified living. The urban and rural middle class and their richer brethren is now a force of over 40% of voters that cannot be ignored. Still, the facts on the benefit of reforms, the changes it has wrought, are no match for the virulent rhetoric against them.

The DNA of the Government of India and most Indian thinking is incorrigibly socialist. It is this that prompts the passage of the Food Bill in the Lok Sabha, and the plethora of other welfare measures that the finances of this country will be hard pressed to bear.

This particularly when our growth has been simultaneously reduced to near zero by unhelpful policy measures. But it also makes further reforms inevitable because our own freedom of movement will be severely curtailed by the lending agencies we will be forced to go to soon enough.

But over the years, the innate socialist thinking has only picked up baggage.  It has abrogated to itself the ideals of the secular-liberal, the inclusive, the idea of unity in diversity, the pluralism; whether it is manifested fairly in practice or not, and whether or not it is being used for electoral gains in a cynical manner.

This is understandable, because the mind-set itself has come by way of an inheritance. It has a sweep of history. Socialism, even Communism, was all the rage in the years leading up to Independence. The unification of Italy under Garibaldi, of Germany under Bismarck, both in the 189th century, the consequent reduction in the power of royalty, the later theories of Marx and Engels, the Russian Revolution of 1917, and the overthrow of the Tsar of all the Russias. Then great Communist politicians, raised to power by the masses, Lenin, Trotsky, Stalin, Mao, even Castro. 

The relentless eclipse of British imperialism on which the sun never used to set. Two World Wars that spelt the end of aristocratic and landed gentrification. The rise of organised labour and the pushing back of remaining hereditary rank and privilege.

But, the day of Socialism and Communism that emerged out of this cauldron is also largely done. This even in the midst of a mighty fall in the bastions of capitalism. Capitalism is indeed given to periodic booms and busts, but each time its phoenix rises higher from its own ashes.  

Once again, it  is under pressure, but in the midst of all its travails, it does possess the lure of freedom, of unlimited individual possibility. It is this tantalising thing that helps it endure. Socialism is dreary in comparison with its ideal of uniformity. But in India, it is experiencing something of a revival by perhaps trying to seize its moment when global capitalism is not doing well.

But once, not very long ago, it was the right way to be. It was post-colonial, fashionable, hopeful, brave, and was meant to be, above all, classless, non-casteist, not bothered about colour and race, fair and equitable. It is what George Orwell’s Animal Farm might have been if it wasn’t an anti-Stalinist allegory.

That both Fabian Socialism and Marxism became the God that failed took years to sink in. In the Seventies, the slogans on Calcutta’s walls under the red hammer and sickle said: ‘China’s Chairman is our Chairman’ in an attempt to project the local into the Communist International Movement.

It took the fall of the USSR, the metamorphosis of China into its capitalist incarnation, the sinking of Cuba into a time- warp, the chaos of African nationalism and freedom, the delirium of a dream betrayed in South America. All this had to come about, along with bits of the Berlin Wall turned into souvenirs for tourists; for the force of this dream to weaken.

In South America, encouraged by large reserves of oil and gas in some parts, Socialism still thrives on its adapted myths of state paternalism and the equality of the heaving masses.

Welfarism, the more genteel face of Socialism, still troubles France and Greece, Cyprus, Greenland, Ireland, Spain, in fact wherever welfarism meets the strictures of austerity. Even without having to cut back, it distorts economic reality, as in the oil rich countries of the Middle East. That it is seeing a resurgence in India when we are particularly impoverished,, is both reckless and desperate on the part of the government.

The sense of entitlement it breeds in the poor, the very sense of “rights” the government is trying to promote, is enormous. It is ultimately debilitating because it is politically difficult to moderate or roll back. It is a gigantic free lunch that nevertheless must be paid for.

But, though nobody at the party as beneficiary, either as the giver of largesse expecting votes in return, or the receiver, is bothered about it now, it is not responsible economics.

The largesse of massive welfarism is not based on the dialectics of demand and supply and commercial transaction, but its profligate cousin. This irresponsible soul say there is plenty more where this came from irrespective of ground realities.

Nehru’s dream of the first decade after the independence he fought so hard for was of Non-alignment and Commanding Heights of the Economy and Panchsheel and Temples of Modern India and Five Year Plans. It was all idealistic and well-intentioned and a product of its times, and should have been let go when he died in 1964.

We really could never afford our Socialism and even more so now when the scale of works is very much greater. God knows it was clear even by then, in 1964, that very little of it worked in practice, and India was falling farther and farther behind the rest of the world.

We were forced by our impoverished socialism to beg America for food to tide us over, for protection against being overwhelmed by China. But we pretended that it was all diplomacy. What will we have to do now when we start to renege on our sovereign guarantees again? We are not part of the EU or NATO. Who will bail us out?

The truth is we have had to suffer in the name of poverty alleviation and other such heady populist clap-trap. We have disdained profit and refused to recognise it all takes money that must be earned.

Instead of moving away from Socialism, we gave it a second lease of life under Nehru’s daughter Indira Gandhi, and now here is  a third lease under Mrs. Sonia Gandhi, who thinks it may even deliver a return of  UPA III.

Mrs. Indira Gandhi’s version of socialism was less idealistic, less democratic, and more twisted, part snobbery and elitism, nationalistic, even jingoistic, but with tinges of KGB style repression. And this too lasted twenty more years, haughtily ignoring our pathetic rate of growth, and truly put India out of the contest.

Liberalisation, to be fair, began as a young man’s dream under Prime Minister Rajiv Gandhi in 1985. But he was killed too soon to see it through, even though he did earn the epithet “Computerji” during his brief season in power. But the plot was well and truly hatched; and it came through, midwifed by crisis, later the same year after he was killed, in 1991.

Perhaps crisis is also in the DNA of this young nation of 67 years. Because, despite all its professions of Ahimsa influenced by the Mahatma, it was born in the blood-bath of Partition that carried away a half a million innocent souls.  And even tied up the loose ends, by blowing up its architect, once our last Viceroy, Lord Mountbatten, only years later, and in an Irish water. 

In 1991, we were forced by dire circumstances, and under World Bank dictation, to liberalise and reform our economy. It was more like a treaty of surrender, our own Versailles Hall of Mirrors capitulation to market forces. We had lost a war against India’s innate destiny to be eventually prosperous. It might have looked and felt like a great humiliation at the time, but it was a great boon of growth as it turned out to be.

But in order to qualify for the bail-out we badly needed to stave off a default of our sovereign commitments; we had to sign on the dotted line. The prosperous years that followed not only freed India from perennial shortages of everything Soviet style, but went some way to spawning the Service Sector that took over most of the growth, and over 50% of the economy.

We became knowledge warriors, software surfers, IT heads, thanks to Nehru’s emphasis on the IIT’s and higher education, and our economy became recognised as the second fastest growing in the world- this particularly after a decade of high growth had gone by.

Another decade and a half passed, while we basked, more or less in the glory of being regarded as the future power houses of the 21st century along with China. Twenty- five years since 1991 however finds us derelict once more, abandoned by the side of the road, out of pep and gas.

We will have to go once again to the IMF and World Bank for a bail-out and they will impose conditions on us. Our powers that be will accept them meekly because they can avoid taking responsibility for the political fallout by portraying it as a necessary, even mandatory sacrifice to save the country’s economy.

The people of India and the entities interested in investing here will benefit, and that of course is the important thing. Our political thinking and philosophy can only change with the passage of time when the people who run our country have been divested of their socialist heritage.  The prosperity of the decades to come will place it in the dustbin of history as a wasteful, inefficient and failed idea that pretends to be equitable. And future generations will wonder why it took us so very long to change our ways.

(2,005 words)
August 28th, 2013

Gautam Mukherjee

Sunday, August 25, 2013

Economic Recovery Needs Government Funded Stimulus Here And Abroad



Economic Recovery Needs Government Funded Stimulus Here and Abroad

International Monetary Fund (IMF) Chief Ms. Christian Lagarde has recently cautioned the countries across the world against withdrawal of stimulus and other unconventional monetary policies designed to prop up weak economies.

Ms Lagarde says the reduction of stimulus should wait till enough is known about the pace of recovery. Stimulus withdrawn too soon could affect financial stability and cripple the nascent growth, she feels.  These are wise words indeed applied to the US, Europe, Japan, and other areas that have adopted the policy of propping up their economies till they are healed. For Japan, stimulus has been in place for over two decades already; for Europe and America, inclusive of periodic large bailouts, ever since the economic crisis overwhelmed their economies since 2008.

But they, the stimulus programmes have collectively prevented a catastrophic collapse of even their smallest economy. There is no 1930s style Great Depression despite many privations such as high unemployment, uncompetitiveness, and stagnating commerce.

India has chosen to hobble its growing economy instead, since 2008, when our GDP was at a healthy 8% plus, in favour of a futile attempt at controlling inflation, but the resultant monetary policies have resulted in an economic crisis of alarming proportions today.

Now GDP growth has fallen to under 5% and slowing, the fiscal and current deficits are out of control and rising sharply. There has been an unprecedented 13% to 15% drop in the rupee’s value in a matter of three months, runaway inflation is threatening further dislocations, corporate distress and large job losses. There are huge NPAs in all the Government banks, a crashing, depressed stock market, and very low economic confidence all around.

And since there is no large scale spending on infrastructure, quite apart from no investment in business or industry because of very high interest rates, the situation is akin to undeclared stagflation.

There are those in India, and amongst those observing the economic crisis in this country from abroad, that think it should apply for a massive bail-out from the IMF as soon as possible to try and set things right; and before the economy of this country weakens further.  

The IMF will naturally lay down conditions that may fly in the face of the creeping protectionism, the raising of tariff barriers and taxation, the isolationism that Indian policy makers have been resorting to lately.

The IMF may also demand that we free the currency by going fully convertible, amongst several other demands designed to stimulate growth. This would make it comfortable once again for foreign lenders to invest in India. But it might mean curbs on the hugely increased welfare programmes including the Food Security Ordinance/Bill.

It would also probably address many of the restricted areas which are not available to foreign capital investment, and occasion lessening of controls and limits on other sectors which do let FDI and FII in, but with a number of curbs. In other words, it would force a forward movement on the stalled economic reforms.

The Indian authorities are not keen on going to the IMF because of its political implications, even as they have appointed Mr. Rajan, formerly with the IMF, to the RBI. Another familiar face,  Mr. Kaushik Basu, currently with the World Bank, and formerly advising the Government of India, has said India can avoid going to the IMF for now. This is giving intellectual heft to the Government’s stance, precarious as the situation is, just as Mr. Amartya Sen’s views gave cover to the Government’s welfare programmes.

Meanwhile, judging from recent developments, the Indian economy will continue to react badly to changes in monetary and fiscal policy in the West as they come.

This, even as the US is reportedly thinking of tapering off its massive $85 billion per month purchase of treasury bonds and mortgage-backed securities to aid the US economy towards recovery.

The remarks from the US Federal Bank Chairman Ben Bernanke, made in May 2013 and since, vaguely suggest that this tapering process might begin from next month, September 2013.

This has partially resulted in a marked flight of capital from the emerging markets and resultant pressure on their fiscal and current account deficits. It has also weakened almost all emerging market currencies against the US dollar.

The US dollar itself may be technically over- valued against fundamentals of the American economy, but since it is the main currency of global trade, it continues to be in constant demand. This demand for the greenback promotes its valuation vis- a- vis other convertible and non/partially convertible currencies.

While in a global environment there is an automatic impact of global trends on the domestic economy, there is no excuse for not kick-starting the stalled growth in India by any means at the Government’s disposal. Not doing this is going to make the real economy much worse no matter how many monetary tactics are employed by it.

This, for a   cash- strapped Government is a tall order. But, if it goes to the IMF and World Bank and asks for money to fund infrastructure and rapidly puts it to use, it will provide the necessary stimulus to the domestic economy to get it going again. But does this Government have the will to do anything like this in the time it has remaining?


(879 words)
August 25th, 2013

Gautam Mukherjee

Thursday, August 22, 2013

The Capitulation of the Sad Sack Indian Economy


The Capitulation of the Sad Sack Indian Economy

The Indian rupee plunges on down, over 65/ 1 $ now, over the precipice, Moriarty and Sherlock both, and hurtling on to nothing less than doom.

It is likely to touch 70 to the $ before the end of August 2013, down over 30% since 2008, when economic retribution hit the Western economies; but the decline of our poor domestically administered currency won’t even stop there.  

We have truly made a mess of it, and blaming the US move to stop or reduce stimulating the US economy from September onwards with bond purchases of $85 billion every month since 2008, makes us look like a paper boat on the high seas. I hope we are soon forced by the IMF and the World Bank to go completely convertible. We won’t ever do it till we are forced.

Still and meanwhile, all our milksop moves to arrest the rupee’s fall on the part of the government are being ignored, just as the government has long ignored the real economy.

The situation has spun out of control, like instant karma, and is now working on its own as it sees fit. The Finance Minister’s plaintive, licking dry lips in nervousness, on TV, his entreaties, his tired assurances, make him, wily as he is, and India, look pathetic.

Mr. Chidambaram is trying to talk down an economic war zone, and sounding like late lamented Saddam Hussein’s favourite fantasist.  He is not dealing with a cat up a tree but his tone sounds like he wishes he was.

The rupee’s betrayed, battered, abused and abandoned spiralling gyrations are a form of death dance at the end of machine gun bullets; and the workings of free enterprise. But not of the kind one looks forward to, even from a comfortable armchair.

The Finance Minister, wailing that this is overreaction, alarmist, false, that the rupee is undervalued, that the noise is drowning out the logic, is not being endorsed by anyone putting his money where his mouth is.
It is of a piece however, in its cluelessness, with the Vice President calling his fellow members of the Rajya Sabha, which he presides over, a cabal of “anarchists”.

The Vice President feels like that, no doubt, because the Government does not have a majority in the Upper House. But he, Mr. Hamid Ansari,(erstwhile from the IAS), owes two terms of his status as Vice President of India, entirely to the Congress Party.  So Ansari, likes to ham up playing its humble servant, despite his obvious intelligence and erudition.

It is probably sad when good people crawl, though it must do their knees a world of good, especially when they have snow on their terrace. Of course, despite the alleged anarchism, which sounds like wishful thinking, the Rajya Sabha has managed to offer precious little opposition to the Government, tamely passing the bills that get kicked up from the Lok Sabha

Sometimes therefore, it is not good to dismiss out of hand, the suggestion that the Opposition has a cosy relationship with the Government. Nobody wants the subsidised party to end. The economy is in the way of the gravy train.

International rating agencies downgrades are going to come next, after the rupee’s fall to joke value, along with a lot of gratuitous but damaging commentary, prompting, more flight of capital, and even less foreign investment of any kind coming in.

This will further depress the currency, the fiscal deficit, the CAD, and the economy. And ramp up inflation cruelly. And write us off the global map, unless election rescues us from the deep.

The only ones that can rescue the dire monetary situation we are in, are Indians themselves.  They can, if allowed bring in some of their secret money stashed abroad and right here. Another black money amnesty is called for, but quickly, and our present Finance Minister is familiar with the procedure, having supervised the conduct of it in the past. 

Let us understand we run a parallel economy, just as big as the official economy. And it is sheer hypocrisy to refuse to acknowledge it, when every politician thrives on mountains of ‘cash’. And the money offshore can work out to be percentages of all kinds of GDP.

The Chinese and the Pakistanis, and all the little littoral states, are not the only ones who are not afraid of us. The gold smuggling has resumed, cocking- a-snook  at the FM and his babus raising import duties.

The Hawala transfers inwards have revived, even for small transactions, and why not when the rupee drops by 1 against the dollar every day, and informal exchange rates have reached 70 to the $ already. These people with the developed counting fingers know which way the wind is blowing.

And despite all this, for the Government, full of its own fraudulence, it is business as usual. There has not been a single bracing announcement to make industry or business or infrastructure or even real estate to sit up and take notice.

In the domestic private sector, gone cranky from the convoluted atmosphere perhaps, the highly respected HDFC’s Parikh says he thinks it is risky to lend to the real estate sector at current high prices. What is he expecting, in his dotage, to happen next, and are these really his own thoughts?

Prices of real estate cannot come down with input prices rising daily and money turning worthless! If you own any congratulations, expect a 30 % rise in valuations in a short time, perhaps by the end of 2014.
But Donald Trump, he of the audacious comb-over, has chosen to ignore present troubles. He has chosen this very time to enter the Indian market with a couple of luxury tower blocks overlooking the Aga Khan’s Palace in Pune. At least his announcement is optimistic about the future.

Donald Trump is the motif. If the Indian Government had a percentage point or two of his chutzpah we would be a country going places.

(994 words)
August 22nd, 2013

Gautam Mukherjee

Tuesday, August 20, 2013

Narendra Modi reaches out to Ali Mian



Narendra Modi reaches out to Ali Mian


The first opinion of the person of intellect is the last opinion of an ignorant person.
Imam Ali

Chief of the BJP Election Committee, Mr. Narendra Modi’s targeting the Muslim vote nationally, is a first class initiative with far reaching possibilities. This is the first time the BJP has been explicit about reaching out to Muslims nationally and marks a very worthwhile shift in policy.

Mr.Modi has indeed secured 25% of the Muslim vote for the BJP in his home state of Gujarat. But this fact is not readily accepted by other Muslims who remain suspicious as of now. There is even talk of the Stockholm Syndrome, the Patty Hearst syndrome, wherein the 25% Muslim voters who went to Modi are supposedly mirroring/appeasing their tormentors as the lesser of two evils.

On the contrary, despite this errant nonsense, Mr. Modi’s version of Secularism which seeks to provide equal opportunities to all, was, and is, the intent of the Indian Constitution, and its founding fathers. It is not a biased appeasement of designated vote banks as practiced by the Congress Party. This has been squarely understood and voted for by a quarter of Gujarati Muslims. These people have seen and experienced the benefits of being treated fairly.

Recent reports continue to state that the Muslim per capita income nationally is the lowest amongst the minorities, lower than Christians, lower than Sikhs, and probably everyone else.

The BJP can hardly be blamed for this state of affairs despite its spurious communal label, because it has ruled at the Centre for just one term and ruled some states for no more than a decade.

Therefore it is the so called secular forces that have short changed the Muslims, who can’t get a job in the organised sector by and large. Another recent report said their presence in Government jobs has gone up from 7%to 10% since UPA 1. This is hardly earth- shaking when the Congress heart apparently bleeds for the minorities!

For his initiative to reach out to all Muslims across the country, Modi himself does not discriminate between the various sects extant. But it can be said that some Sunnis of India are well entrenched beneficiaries of the Congress Party already, in so far as they do anything for the Muslims at all beyond paying them lip- service.

They are also favoured dependents of outside supporters such as the Samajwadi Party, that currently rules Uttar Pradesh. But most of this support is also theatrical, rather than substantial.

So, Sunnis as a whole, particularly the highly politicised richer ones, may or may not be inclined to switch over to the BJP and its blandishments. Though the poorer Sunnis are, and have been, just as neglected as the Shias.

So, it is the Shia population of over 50 million nationally, making them a third of all Muslims in the country, who may heed Modi’s call first of all. They know what it is to be neglected and worse by their so- called own!

Some 20 or 30 million poor Sunnis may also do likewise. At 80 million, that is almost half of the total population of Indian Muslims, and they can make a dramatic difference to BJP’s fortunes at the hustings. These people have all been largely ignored or given second- class treatment by the Congress Party for long, and now by various constituents of the UPA too.

And not a word ever emerges from our Government about the regular slaughter of Shias across the border in Pakistan, though the latter make bold to comment on goings on in India regularly, at all levels, including their parliament and via such radical “non-state” India haters like Hafiz Saeed of LeT or Jamaad, or whatever new label he attaches to himself in order to shift ground.

Mr. LK Advani, the BJP patriarch, was vilified and punished by his own, in an act of ingratitude and churlishness against the man who put the BJP on the map and propelled it to power. This was some years ago, when he had the temerity to praise Mohammad Ali Jinnah as a secularist. After all, the founder of Pakistan, was, in effect, both an honorary Englishman, a pork eating, alcohol drinking one at that, and a Shia.

And so, knowing how it feels, and seeing the wisdom in being inclusive, the octogenarian Mr. Advani was quick to lend his support to Modi’s clarion call.

If the BJP rank and file, the RSS cadres, the other elements that make up the Sangh Parivar, such as the VHP and the Bajrang Dal, often given to anti-Muslim pogroms, join hands with this brilliant initiative of Narendra Modi’s in right earnest, much electoral dividend could result.

Not only that, the ‘untouchability’ factor that always plagues the BJP in terms of post-poll allliances will be much assuaged and nullified.

The Indian Shia minority, concentrated in Uttar Pradesh’s state capital and erstwhile abode of the Nawabs, Lucknow, and Andhra Pradesh/Telengana’s Hyderabad, formerly the capital of the Nizamate and one of the richest princely states in British times, is waiting for an alternative that does not discriminate against them in favour of the Sunnis.

And the concentrations of prosperous Shias in Delhi and Mumbai are also significant electorally and influential too, because they live in the most prominent metros in this country.

In  Lucknow, the lines in the sand seem to have been drawn. Shia community leaders expressed their disappointment with CM Akhilesh Yadav and the Samajwadi Party by staying away from his Iftar parties recently. The SP Government is perceived to favour the State’s Sunni sect and came down with ill- advised police action against Shia men, women and children in procession recently.

A long- standing demand for a Shia Wakf Board for Uttar Pradesh has been languishing too.

Abroad, Pakistani Shias, persecuted and hunted daily by their Sunni countrymen, will be watching Modi’s progress with sympathy. As will the people of Shia majority and oil rich Iran and the population of Southern Iraq, around the Shia Holy shrine of Karbala, chafing under the minority Sunni domination of Iraq.

This is therefore not the opportunism a panicked Congress thinks it is, but a voice for a brave and accomplished set of people that count many famous Indians in their midst including late Shehnai maestro Bismillah Khan, several Khans from Bollywood,  Javed Akhtar, the poet and screen-writer, tennis player Sania Mirza, and others.

Whether the Shias and their spiritual leaders will recognise this opportunity to leverage their advantage via the BJP remains to be seen.

(1, 091 words)
August 20th, 2013

Gautam Mukherjee

The Fall of a Billionaire Buccaneer


BOOK REVIEW

Title: The Billionaire’s Apprentice- The Rise Of The Indian-American Elite And The Fall Of The Galleon Hedge Fund
Author: Anita Raghavan
Publisher: Hachette India, 2013
Price: Rs 499/-

The Fall Of  A Billionaire Buccaneer of Wall Street & South Asia’s Most Successful International Consultant

This is the story of a double-billed tragedy for the South Asian-American elite.  Hedge Fund mogul Raj Rajaratnam is already in jail for 11 years, while former McKinsey consultant an d extant Board  Warrior Rajat Gupta is busy filing expensive appeals against his conviction and jail sentence.

But, it is the wire- taps on their phone conversations, authorised, and accepted by the US authorities and judiciary, that brought both down. This is the first time such wire taps have been used in insider trading  investigations and cases. Therefore, this story can be viewed as part irony, part miscalculation. But it convicted these highly intelligent and accomplished corporate players who made good in one of the most competitive environments in the world.

They, Rajaratnam and Gupta, the admired, respected, and savvy big fish, thought the phone conversations were inadmissible. This became their Achilles Heel. They thought wire-taps on their phone conversations would not even be authorised in any attempt to investigate them for insider trading. It had never been allowed before, and that may be why they were blind-sided.

The lesser players, the ‘inside’ informants on which the Galleon Hedge Fund’s spectacular performance depended, along with its sister funds and associates, ran into some 40 people indicted eventually. Of these, 23 pleaded guilty, and some of them turned ‘approver’ at the civil trial. Many of these people, were also largely, though by no means exclusively, from South Asia.

Anita Raghavan, the author of this terrific book, is also a distinguished product of the diaspora, born in Malaysia, graduate of the University of Pennsylvania, 18 years covering business at the Wall Street Journal, awarded several times for her work, London bureau Chief of Forbes, contributor to the New York Times and so on.

Raghavan has written a fascinating book here, painstakingly researched, engagingly written, it is that rare thing, a page- turner of a business shenanigans book, replete with the drama of downfall, not of ordinary people, but a couple of the best and the brightest,  unaware perhaps of their dangerous flaws.

The obvious motive for the goings on described would be greed and corruption, but one is left wondering after reading through the book. Is this story about money or daring, about power or insecurity, about human frailty or cynicism?

None of the dramatis personae, living large on the American Dream, seem particularly venal. And their biggest crime seems to be in getting caught for conducting their ‘intelligence gathering’ in a sloppy manner, doing little to cover their tracks or disguise their financial gains.  

The FBI, the SEC, The US Attorney’s Office, oft accused of ineffectiveness when it came to rampant insider trading, in the tempestuous and heady bull market of the Clinton years going into the George W Bush ones; clearly needed a big kill to salvage their reputations.

Never mind that the whole of Wall Street collapsed in 2008 because of dodgy decisions and questionable financial instruments ruthlessly leveraged by the largest investment banks in the world!

These careless unfortunates, subject of this book, immigrants, made perhaps too good too fast for some observers, provided the prosecutors a face- saver and target.

Not only that, various Indian immigrants/ethnic South Asians amongst the prosecutors were out to make their reputations safely, by taking down a couple of their own.

As the 44 year old Preetinder Bharara, an ethnic Sikh, US Attorney for Manhattan South, said, somewhat loftily : “Disturbingly, many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged and wealthy insiders in modern finance. But for them material non-public information is akin to a performance-enhancing drug”.  

But then, says author Anita Raghavan, Bharara wants to make it to the US Supreme Court as a Judge one day. Prosecuting the  US v. Rajaratnam could well be regarded as a ‘career-defining case’. It certainly got Bharara into the papers.

On the other hand, the brouhaha over this case may not be justified. After all, “Some legal scholars contend that it is a victimless crime,” writes Raghavan, and also, “the government alleged that Rajaratnam pocketed as much as $75 million from his illegal trades. Compared to Rajaratnam’s net worth of $ 1.3 billion at one time, the sum pales”.  

Raj Rajaratnam came from privilege in Sri Lanka, had impeccable educational qualifications from Wharton and ran a multi-billion dollar set of Hedge Funds through the Wall Street meltdown of 2008.   

But, Rajaratnam was by no means the biggest inside trader on Wall Street. He was just one the US authorities made an example of, thanks to the provability of the case against him. Contemplate this brilliant, if boorish ‘Tamil Tiger’, and his smooth Bengali orphan- made- good accomplice; products of Wharton and Harvard respectively, for a long moment.  Did they really get what they deserved?

(807 words)
August 20th, 2013

Gautam Mukherjee

Sunday, August 18, 2013

The Eyes Of God



The Eyes Of God

God is, by definition, omnipresent, omniscient. He knows and sees everything. In India, with multiple religions, a plurality of gods, there are, bolstered by the belief and faith of billions, many, thousands of divine eyes, presumably watching over us.

And most Indians in this teeming populace, believe and trust, in this most religious of nations, that at least a pair or two of these divine gazes, perhaps of our choice, fall benignly upon us individually, sometimes.

We the People, as the great jurist Nani Palkhiwala liked to refer to us,  are currently in particular need of divine protection.

This, of course, because the guardians of our mundane fate, our Government, seems to be making an alarming mess of things with the greatest unconcern.

Everything in the economy is falling apart, destroyed, as in a roaring fire, like a house of cards. And nothing at all is being done about it as part of the Government’s scorched earth strategy.

The inheritors after the general election, if they are not the UPA, will get the blame for every action of the UPA II dispensation today, because a lot of it is being legislated into a sovereign commitment, and the wherewithal is being torched.

If they come in themselves, they will think about the Economy and Reform then and if their rivals reverse any of the disastrous populism, they  will have to pay a political price.

The Congress Party, let us admit, cannot be underestimated ever for its grip on realpolitik. It is the most experienced at it, the longest in power over the last 66 going on 67 years since Independence.
This burn every standing crop, destroy every house and bridge, metaphorically speaking, is a vicious strategy, born of the cynicism of power and untold wealth, stolen and accumulated from an endless procession of scams.

The Congress Party  holds the people of India, those who are most grievously affected; in utter contempt. The people in question are unwashed, illiterate masses, peasants, and urban slum dwellers alike, who can be cheated by the political classes anytime.

The politicos can afford to do this because of the indirect way our parliamentary electoral system elects its ultimate leaders. Eventually, after all the votes are counted, it is a closed shop of parties and elected MPs, and not the voting public.

Thus,  the need to befool and confound the public, before dismissing them from all consideration thereafter.
They, the revered Gods, and Goddesses for that matter, know all this,  but are helpless, despite their immortality and omniscience. They know the wages of sin, but also that there is no going back, no rewinding Time, in order to keep the firmament and fabric of the universe intact.

It is an eternal, inviolable truth, this forward motion, that even Time Machines when they truly come, can’t really subvert. Though a few surprising and unintended consequences can, and no doubt will, result as an outcome.

Unforeseen effects, not unlike those brought about by the march of cutting- edge science, such as in-vitro fertilization, sometimes using eggs and sperm from selected donors, strangers to the parental couple, buying into lab specimens, to manipulate genetic outcomes.

There is the rampant, supposedly traceless, maternal surrogacy. There is stem-cell therapy giving hope to the crippled   and the decrepit. There is gene splicing and preventive surgery- the list is getting longer than the formulas proving the Law of Relativity.

Albert Einstein did however say that, “God does not play dice;” and the reassurance obtained, on order over chaos, in that elegantly put statement, is most reassuring at this time.
 So, they, the Gods, must believe PM Manmohan Singh when he says he is not taking the country back to 1991 in 2013.

And P Chidambaram, when he says not to panic over a nearly 800 point drop in the Sensex; some 250 points on the Nifty the day after Independence Day.

Dr. Subbarao, retiring on September 5th,said nothing at all about an all- time low on the Rupee at over Rs. 62 to the dollar. Analysts are predicting 65, then 75 to the  US dollar, with brazen confidence.
The wags think nothing of 1991. They think we are going further back, to the hesitant eighties, to the impoverished seventies. 

Legacy questions apart, not counting the redoubtable octogenerarian PM, twice by-passed when  it comes to his sorely tested heart;  plans to turn up gamely to shoulder his familiar burden for UPA 3 once more. He is perhaps thinking, I began our growth along with Prime Minister PV Narasimha Rao in 1991, and I am pulling down the curtains on it all in 2014.  

Back, poet TS Eliot fashion, as in his Little Gidding from The Four Quartets: “We shall not cease from exploration, and the end of all our exploring will be to arrive where we started and know the place for the first time”.

The rest of us mere mortals may be forgiven for remembering talk of India as the second fastest growing economy in the world. It was a chimera, a waking dream, dreamed by madmen, that is now suddenly gone.
There were great expectations, and many expert commentaries and projections, but no more. Now some are calling India the worst investment destination of all EMs, a terrible place to do business even otherwise. It is as if the last 25 years never really happened.

The even more depressing idea is not that we have to endure the horrendous mismanagement of the economy for the remaining few months before the elections.

But because of the infighting in the BJP, and the resurgence in the regional parties, UPA could come back to inflict UPA III upon us and carry on where they left off.

Manmohanji would be kept/ stay on, and mumble and sleep-walk  through another complete five year term. He is the lucky mascot of the UPA , and the most non-threatening prime minister in history.

Nothing could be worse for India. Nothing could be better for the Congress Party.

(997 words)
August 18th, 2013

Gautam Mukherjee

Thursday, August 15, 2013

Too weak to go Trysting against Manifest Destiny


Too Weak To Go Trysting Against Manifest Destiny

India’s economy, like its security, is suffering from a thousand cuts too, but most of these are self-inflicted. And its policy prescriptions of monetarist containment, rather than inspiring and stimulating growth, is the main reason.

The rupee meanwhile is headed to 65 to the dollar and the stock market is headed downwards.
Ironically, it would have been so easy to grow with the right policies. Our economy, as popular writer Chetan Bhagat, who is a former investment banker, said recently, is domestically driven, and not particularly dependent on the global environment.  

But our policy makers are trapped and entrenched inside a fiscal Red Fort of their own making, because they won’t lead an expedition out of its portals to revive our fortunes.

We have a Government too deflated by its many burdens to risk its arm, and probably much too fatigued. And distracted with populist stratagems aimed at election preparations - to care.

And so, we have another high- priced onion and vegetables season which tends to herald a change of Government.

Many analysts are speaking of the eighties, the nineties,  the bad times of decades gone by, because of the state of the economy and a thicket of newly sprouting Government controls.  

We have, for example, raised capital controls after decades, reducing the $200,000 we could take abroad for investments per person per annum to $75,000. Inflation is at an all-time high, rising by a percentage point in the last month alone.

Even a 10% duty on gold imports is not curbing demand. Foreign exchange reserves are indeed tumbling alongside almost daily record lows for the rupee. Growth has trended southwards of 5% in GDP. The CAD is at an all-time high and getting worse.

The rupee, it is clear to some, cannot revive with monetary policy alone- it wants, is crying out, for the weak economy to be restored to health. Every industry and business, with imported content, is in trouble.

Meanwhile business and industry is scrambling to invest abroad to spread its risk, out of the clutches of a badly run country with its economy on the skids. The Economist says the largest number of buyers of Mayfair properties in London this year have been Indians, ahead of the Russian oligarchs, the Arabs, the Iranians.

Foreign investment inwards has dried up in disgust with our obtuse inability to move the economy forward. The India Story is rudely shelved for the time being.

But our Government, content to act in throwback mode, is persisting with raising customs duty barriers, with coercive and retrospective taxation, introducing more and more Government oversight, even via the new and long awaited Company Law, all moves harking back to the Licence-Permit Raj.

Such steps bewilder and dishearten foreign investors, already fed up with our infrastructure problems and bottomless red tape, and yield very little. Menacing domestic business and industry with endless hectoring and pomposity is no way to try to revive matters either.

In acute economic and fiscal trouble, the Government is resorting to old Socialist moves. It seeks to pass it off as prudent action aimed at favouring the interests of the common man. Combined with unprecedented corruption though, it makes for a hypocritical and unconvincing profile. And few people are willing to tolerate such depredations in the vastly more globalised world of today.

No one in the Government dares to speak of vision or idealism anymore, not even the dispirited, almost sleep-walking PM on our 67th Independence Day. His speech was peppered with regret, apology and false hope; cagey in delivery, full of dodges, party- line approved mentions, and clichés.

There is no tryst with destiny left in the UPA. Even though Mr. Narendra Modi likened Mr. Singh’s promises and expectations in our 67th year, to Mr. Nehru’s hopes and fears in the early days of the republic. But he meant it in the sense that there is, sadly, too little progress to boast of, even after 66 years.

\Besides, the challenger’s speech, addressed squarely to the people via the incumbent Prime Minister, sounds like he is speaking to his ‘manifest destiny’. There is no ‘delusion of grandeur’ as some would have it; instead, there is a man, probably the most prominent and successful Chief Minister of all, who wants to set things right.

Manifest Destiny, incidentally, was the phrase oft used as the justification by the early American immigrants, to spread their presence from ‘sea to shining sea’.

This UPA Government, after 10 years in power, is in retreat, like an army beaten by its own misjudgements, miscalculations, hubris and complacency. It looks tired and dispirited by the avalanche of bad news on its watch.  

New borrowing from quasi-sovereign bonds overseas, liberalisation of PSU bank borrowing abroad, tax free bonds for a number of PSU corporates, all being resorted to now, will only serve to bridge some of the gap in funding over the short term, while increasing the country’s indebtedness.

But only a true economic revival and rise in GDP to double-digits or thereabouts will suffice to put things back on track.

The economy is clearly stagflating at present, and the work to resuscitate it will need to be done by the new Government, in 2014 and beyond.

(869 words)
15th August 2013

Gautam Mukherjee

Sunday, August 11, 2013

Lone Ranger & Tonto



Lone Ranger and Tonto

Amongst the sea of bad news ranging from Rahul Gandhi’s characterisation of poverty as ‘a state of mind’, to the impunity with which Pakistani commandos kill our soldiers on our territory; the launch of the hull  and basic ship to be outfitted as a 40,000 tons aircraft- carrier and the nuclear reactor on the India built ‘Arihant’ submarine going critical, is most encouraging.

The Indian Defence Industry could be the great white hope of our resurrection as an economy if the private companies are allowed to power on into this space as announced recently, but alas, not for the first time. If one is in the habit of holding one’s breath when it comes to policy implementation in India, one could easily die of asphyxiation!

Meanwhile, the Lone Ranger film starring Johnny Depp as the weirdly portrayed Tonto, the Red Indian Scout, has apparently bombed at the box office. But some news has surfaced simultaneously on the real life Lone Ranger.

The beloved fictional character of the comic books and early days TV serials, with the leather eye mask, was apparently modelled on a 19th century black slave, Bass Reeves from Arkansas,  who was a fantastic shot, became a US Deputy Marshall, and apprehended thousands of criminals.

In the comic books, TV serial and ever more thereafter, the Lone Ranger has been indubitably White. Besides, the very popular Mr. Depp, who plays Tonto in his latest airing, implies he is a natural, and has long claimed some Red Indian blood flows in his veins.

Acceptability in social manners and mores, attitudes and prejudices, all change in time, so one does not have to guess, particularly, even if a black man does come to dinner these days.

And so it can conceivably not be a stretch to one day see Indian naval ships and nuclear submarines and indeed missiles and aircraft carriers, as billions of dollars- worth of desirable purchase by countries who cannot make such things.

Instead of a single- minded devotion to the US and European made alternatives, that is. But then this is about very serious GDP bending money, but nothing that can’t be finessed by the right arms agents.

America’s balance of payments position literally depends on its high-tech exports of military hardware/software as well as civilian aircraft and super computers. They have long ago outsourced the manufacture of all the simple stuff to China, making their fortune in turn.  India, Bangladesh, The Philippines, parts of South America, sundry others, are also in on the act to a lesser extent.

And in a way, this high-tech and armament export does their credit rating and ability to borrow such formidable sums of money, a world of good. With the world ever eager to buy US Treasury Bonds in trillions of US debt, confident about its ability to repay and festooned with a AAA rating.

The US has great leadership in such areas, awesome R&D, and the wherewithal to keep excelling in this arms race. Europeans such as the British, the French, some of the South European countries, Russia and Israel, make up the rest of the relatively short list of global arms manufacturers and merchants. India and China are just starting in on this invincibly lucrative pie.

But when it comes to a war, do combatants want made in India armaments or Chinese aircraft? Not if they can afford the Western alternatives, and not until the Indian and Chinese arms are properly tested in the battle-field as worthy of being called alternatives at all. Let us hope they are not tested on each other, or on proxy interference as in Pakistan.

And yet, it is not inconceivable that the world could buy Indian military hardware/software. If it was, India and China and even Pakistan would not be nuclear powers today.  

We, in India seem to be moving not only to the much talked about ‘Triad Capability’ in the launch of nuclear weapons from platforms on land, sea and air, from fixed and mobile targets, simultaneously if necessary, in devastating retaliation for any first strike against us.

A first strike that will not however have the ability of knocking out our capacity to retaliate with the force of total destruction.

And we seem to be moving in the direction of self-help for most military needs going into the future. This will secure our own strategic interests most satisfactorily, and give us the wherewithal to preside over a GDP fixing arms export capability of our own.

So until demilitarisation is a reality in this troubled world, the viable dream of military deterrence and self- sufficiency will just have to do.

We may be years away from this in actualisation terms, but Mr. Narendra Modi has shown a keen interest in promoting the Indian self-defence industry. He wants to incorporating private players for speed of execution, requisite finances including FDI and joint- venturing in this sector, and technology induction and further development indigenously.

From an economic point of view this might save us a lot of money for our own ever growing military upgradation needs, and set us up to serve the military requirements of other countries, at least in our South Asian neighbourhood if not farther afield.

(867 words)
August 11th, 2013

Gautam Mukherjee

Wednesday, August 7, 2013

The man from the IMF


The Man From The IMF

Mr. Rajan, all of 50 years old, has got himself an executive job as the country’s Central Banker as of early September 2013. He will take over from the stubborn but failed inflation fighter Mr.D. Subbarao. One can’t say for sure, but this might be the first time Mr. Rajan is not in an advisory role.

Mr. Rajan, like the Manchurian Candidate perhaps, is, according to the Millenium Post, a brave little newspaper with great production values, a US Citizen.

This is scandalous on the face of it in a country teeming with eminent economists, but no more so than an Italian-Indian running our country. And obviously, our copious Constitution, Ambedkar, RIP, and his erudition notwithstanding, is silent on the matter.

Hmm..  still, Our Central Banker, presently, till September, Chief Economic Adviser with a room next to the vast imperial playground of a room occupied by the Finance Minister, for the third time, at North Block, is an American of South Indian origin.

He will apparently go off from time to time as visiting Consultant to the US Fed etc. as well.

Meanwhile, poor Mr. D.Subbarao will be, for historical footnote purposes, if he isn’t already, something of the fall guy for the mishandling of India’s macro-economy so far during UPA II.

This is a charade, because as Mr.Swaminathan Aiyar pointed out on the front page of the Economic Times of the 7th of August, the RBI Governor is on a tight leash from North Block. He is, by definition and design, far from independent, and so Mr. Subbarao did nothing other than what the Finance Minister, and his masters, permitted and wanted him to do.

But scarily, Mr. Rajan’s pet obsession is also inflation like Subbarao’s. He has built something of a career on the notion. He might have been called a “Luddite” by his Harvard educated boss in the IMF, where he was also Chief Economic Adviser earlier, for predicting the US economy crash of 2008. But his economic logic was essentially how can you borrow so much and expect to get away with it, or what we readily see is good old Indian fiscal conservatism.

 But fortunately, Europe and America and Japan 2013, after attempting to rein in inflation with disastrous and alarming results of a suicidal bent, what with their weighty economies in dire peril; have said to perdition with inflation. They have plumped instead for growth, by coaxing a rise out of it with stimulation after stimulus!
Talk about ageing Captain America and the Sick Men of Europe, no longer making their dares stick, it has not worked too well even then and despite.

 The ravages of a profligate borrow and spend economy, as Fanny Hill might have said amongst the vials of laudanum, do need time in convalescence. But the exciting animal exuberance of  Capitalism thrives on this principle and lust for profit; so much so that cannot be eliminated, any more than sin, or retribution for that matter.

Japan too has been a recessionary economy, but for decades already, with what seems a quaint $ 500 billion debt initially, that it nevertheless could not ever subdue. But in the developed world, these things still appear genteel on the surface.

A big economy has many a screen to hide behind after all, and on the face of it still looks like always. Not so, a wannabe, less than one trillion dollars’ worth of official and chaotic Indian economy. For us, the tears in the fabric start to show quickly, and the wash and wear grows rapidly threadbare.  

And Mr. Rajan is expected to be the Sir Galahad who fixes things. He is confronted with inflation, lack of growth, and huge current account and fiscal deficits that threaten to trigger financial obligation defaults.

What he will succeed in doing, Mr. International Rajan, if he takes it into his head, is get India some large loans to beef up its investment in infrastructure using his international recognition. And this might perk up both the GDP numbers and the national image a bit.

He might not be able to do much quantitative easing, that is lowering of interest rates, till after the elections, because imported petroleum based inflation may not let him. But he might ease the norms to allow the privates to borrow abroad more freely, assisting by his already readied “quasi” Sovereign Bonds aimed at NRIs, and enable the spending of some of that money domestically.

He might even provide some incentives to make it happen. He might do the same for our under-funded PSU banks and make things freer for the private and foreign banks as well.

At least, if he agrees to work in tandem with a Federal Front Government, or a Narendra Modi led BJP one, he can make a difference. The Congress led UPA, that is appointing him, will not be around for most of his tenure of 3 years, thank God.

But let us see what the young but most distinguished future Governor of the RBI makes of it.

(839 words)
August 7th, 2013

Gautam Mukherjee