Rudderless but going down

Rudderless but going down

In a season of increasing political activity, the economic markers tend to be anything but uniform. But the trend is basically downwards and the feeling is that there is no one at the controls. In the remaining months before the general elections, governance is the last thing on the Government’s mind.

This is not surprising, when the Government has come to loggerheads with its leading constituent party. The ill-conceived ordinance to preserve in office convicted criminals as legislators, and electable candidates, is contemptuously thwarted by none other than the Vice President of the Congress Party. The Pakistani Prime Minister, not to be outdone, calls ours a “dehati aurat”, pressing the plausible deniability button simultaneously, while both are being hosted by the Americans. Much, it is rumoured, to their straight-faced amusement.

Petroleum Minister Moily talks of cutting petrol prices slightly, while diesel rates at the pump need to be raised sharply. The latter, necessitated by a weaker rupee, portends another round of food and other price rises.

Meanwhile in the absence of any Government efforts at stimulus or liberalisation, Private Sector company profits declined 11% on average in the first quarter, as per the Government’s own RBI.

Foreign exchange reserves rose $2 billion however, the exact same amount as the increased FII investment in the stock market. This is stimulus money coming back in, say some analysts, because the US has postponed its “tapering” and the reserves have risen because of Rajan’s easing of some banking “swap” norms.

The new RBI Governor, receiving yet another award for his economic prowess in Frankfurt Germany, pointedly wondered about the efficacy of low interest rates on the revival of an economy. The suggestion is we need to brace for tougher moves on his part if inflation does not succumb to his will first.

A few editorials around India liken Raghuram Rajan to Paul Volcker, the Carter era Fed Chairman, who put a stop to US inflation by shutting down economic growth. But Volcker did set the stage for the 19 year hyper-growth party under his successor at the Fed, Alan Greenspan.

So does Rajan, likewise, intend to be cruel to be kind? His anticipation that as a Central Banker he is not looking for a large number of Facebook “likes” probably gives us a clue.

There are other reports that suggest Rajan will take a series of growth inducing measures shortly. Both reports must be true, though the import of one or the other will hold the balance. But we shall have to just wait and see in this atmosphere of rudderless uncertainty. Rajan has already said he maintains a “neutral” stance, but will act either way based on developments and exigencies.

Meanwhile, DLF, India’s biggest developer watches its share value decline everyday as it tries to reduce some of its $3.5 billion (Rs. 21,000 crores) debt by selling of land parcels around the country. DLF calls them “non-core” investments, and wants to return to its roots in Gurgaon, Haryana, and other places in the North where it is best accepted, without exactly saying so.  But its pan-India ambitions are being gobbled up by cash- rich regional developers with little or no debt on its books.

Other builders too, particularly in the expensive Mumbai market, are groaning with massive debt burdens, even as offtake has slowed down, leaving many holding large inventories.

There has long been talk of a property bubble, but while it could apply to the commercial developments in new and far-flung areas, in India, the demand for residential property is real. And deep cuts in price, meaning a reduction in builder profits, should move the unsold flats quickly enough. The bottleneck formation includes the fewer and more expensive housing loans these days.

Still, the prices are likely to be discounted this festive season, along with inducements and sops, not only for houses and flats, but cars and white goods and clothes too.

But travel, on the back of raised fuel bills and increased demand will be more costly. The airlines expect ticket prices to soar but are apprehensive about consumer resistance at the same time. The spectre of stagflation is never too far away when growth is practically non-existent.

The BJP contender for the top spot intends to usher in sweeping change with his “dream team” instead of a “dirty” one ruling the roost at present. This hints at alliances in the making. Even as there are rumblings of discontent amongst the UPA allies at the Government’s proclivity to give itself clean chits with regard to Congress involvement in every scam.

Others are never so lucky, though the CBI tends to get called off if they remain loyal.

The new button on the EVM that allows a voter to choose “none of the above”, an abstention, will now be counted. And this too, along with the decriminalisation of legislatures will have a long term effect on our polity and thereby on our economy.

To say, we need more reform of everything cannot be denied. Amongst the most pressing is judicial reform. If the courts don’t deliver justice within a reasonable period it makes a mess of the rule of law and proves to be a major disincentive to the growth of business and industry.

Corruption becomes more brazen every day. So does criminal activity, including rioting, murder and mayhem as in Muzzafarpur and now Meerut.

Is the ruling party politician happy to keep the judicial system over- burdened and largely ineffective? Perhaps. They don’t seem to be very happy with Supreme Court directives and orders to clean up their act.

The BJP has declared it wants change, and been to the President to protest the “criminals in parliament” ordinance.  So what about the Congress? When will it begin to walk the talk?

(962 words)

September 30^th, 2013

Gautam Mukherjee