Future Imperfect

Future imperfect

Even as political parties take to the rally circuits demonising their opposition, we need to be proud of this  robust campaigning and electoral process. We have conducted it better: from mega phones and rickshaws, wall posters and TV ads, talk shows, on-the-stump harangues, the internet and cellphone, through low-tech  and high-tech, over jungle and stream, ballot-box to EVM; than any other country.

It is a superb no-holds-barred venting of the national spirit that can only be subverted by the violence that silences. That is why electoral violence, the threat of sudden death that our politicians risk when they attend and address public meetings, is possibly the unkindest cut of all.

And to use such violence, or permit it to happen by default, as a political tool, is truly despicable in its subversion. Is this what happened in the Hunkar Rally at Patna where Narendra Modi addressed lakhs of people recently?

If the Indian Mujahideen (IM) and its ilk thrives in India, it does so with the patronage of forces both within and without this country. Being soft on such terrorism is not at all a good turn done to millions of law abiding and patriotic Indian Muslims.

It is this sinister and primitive stratagem of the politics of assassination, engineered riot, stampede, etc. that can stifle our vibrant democracy. In Pakistan, where ‘non-state actors’ are pampered and maintained by the State, several politicians have been silenced. It has become such a Frankenstein that no one is safe. The Pakistani Taliban and others are quite willing to bite the hand that feeds and even dictate terms today.

The politics of assassination has taken its toll in gun-happy America too. It kills presidents, but school children, rock stars, people in congregations and gas stations too, because even though they say a fish rots from the head down, it actually does so from the gut outwards.

We have done it too, killing in political vengeance, in riots and pogroms, and almost without protest in this highly populous country. We have also killed two members, perhaps three, of the ruling Gandhi family. And we have martyred Mahatma Gandhi. And many far less exalted.

Rahul Gandhi is not wrong when he thinks he might be a target too. It would be a pity in the extreme to silence this harmless young man. He is, after all, clueless about the needs of the country despite his political lineage and years in politics. This threatening of political lives also tends to have the opposite effect from the one intended. This, and the muzzling of the ‘otherwise opinionated’ that we have only seen here during the Emergency.

The one truth therefore that we tend to take for granted is the level of freedom of opinion and expression, of conscience, we enjoy in this country. We must be proud of the purple prose of our editorials and the hectoring tone of our TV anchors for this reason alone. We must appreciate the lively debate between invited speakers on our talk shows even though the Indian way is to speak all at once and freely interrupt each other! 

Let alone the hyper-sensitive regimes and structures of most of the neo-colonial and ‘emerging’ world, the West is, even today, far from tolerant, and nowhere near as free. They are devotees of order and the homogenised opinion, one dominant ethnicity, one dominant religion, one set of beliefs, a single narrative. Free thinkers are fringe operators, regarded as ‘weird’ and barely tolerated. Minorities are ‘exotic’ and urged to merge with the mainstream. Racism is rampant. Quite often all the ‘rainbow’ people are subjected to violence and worse.

Wikileaks exposes’ and Obama’s phone-tapping of his European allies and countless Americans are just cases in point of the paranoia that rules the idea of Western security. America is capable of being just as sinister as anything the pathologically aggressive ISI can dream up. This despite also being ‘the land of the free and the home of the brave’.

When, in great metropolises such as London, Paris or New York, diversity is allowed its play without murderous reaction from opposing forces, it is cited is as a mark of civilisation and is celebrated. But Western civilisation has to remind itself to be tolerant. It does not come naturally to a people with crusades, which are just jihads by another name, in their genetic memory.

And yet, in venal, corrupt, age- old India, we can, and mostly do say whatever we want. Hinduism preaches it. So does Buddhism,  Jainism, Sikhism, etc. along with non-violence, even Indian strains of Sufi influenced Islam say the same thing, as does an Indianised Christianity. We know how to embrace diversity. It runs in our genes.

The British, affected by their Indian exposure, did have us locked up in political prisons, but not that many at that. The Moghuls had their enemies murdered, but mostly the rivals to power from their own families and those in territories they conquered.

We, even in the formation towards a nation state, have never indulged in massive genocide, ethnic- cleansing, or the bloodbaths of religious war, except at Partition. This country is essentially peaceful, god-fearing and blessed. Many the world over realise it. We who are born here tend to think nothing of it. But we do nevertheless benefit from it despite increasing lawlessness of late.

The Soviets and the Chinese have murdered their own citizens in their tens of millions for being misfits, mildly critical or rabid dissidents, with almost no distinction made between minor and major affront.

They say the best predictor of future human behaviour is past behaviour. Let us hope then that we vote for peaceful change to Modi Raj rather than a maintaining of the status quo out of habit or risk aversion.

What will we get if Congress comes back either at the head or at the tail-end of a coalition?

We will certainly get more povertarian  politics! There will be no justice brought to all the masses of corruption perpetrated over the last few years. ‘RaGa’ will continue to rule from the wings in tandem with his mother. ‘Dynasty’ will become a non-issue just like the ‘foreigner’ issue before it. Populism will be applied with a passion. Business and industry, GDP, infrastructure, security, diplomacy, reform, progress, practically everything else will languish. ‘Accountability’ and ‘Performance’ won’t matter .

There is a clear- cut choice this time. Narendra Modi wants to go fast-forward to build the nation and its economy. Rahul Gandhi wants continuity, of the failed but remarkably serviceable Socialist narrative. What is it that the people of India want?

(1,101 words)

October 29^th, 2013

Gautam Mukherjee

The Dignity of Suffering

The Dignity of Suffering

Why is the New York Times (NYT) taking up cudgels against Narendra Modi with the oft-trotted out Congress line? It is almost in the way of a lobbyist’s poison-pen press-release, and that too in terms of an editorial stance led by a Mr. Rosenthal, who claims an Indian background, despite his  confusingly splendid Jewish name. In an editorial, as we all know, motivated opinion can, if one is so inclined, substitute for facts.

The NYT accuses Modi of lack of inclusiveness and tolerance. It questions the Gujarat model of growth and its efficacy. It complains about NaMo’s attitude to Muslims and fabricates accusations that the Muslims of Gujarat have stayed backward under his leadership. This even as NaMo gains lakhs of followers of every shade everywhere in rally after rally around this country.

The NYT has completely ignored the procession of noted Muslim clerics and community leaders speaking up with increasing frequency to make clear that they see no difficulty in Muslims voting for Modi and the BJP.

Oblivious of all this, and other inconvenient facts like what the people of India may want, but from all the way across the other side of the world, the NYT, declining circulation and all, declares Modi unsuitable to lead India!

Is it because the NYT is Leftist, like the Guardian in the UK, and feels uncomfortable with a market-friendly Modi? Is it responding truly to Congress lobbyists in the US? After all, its DNA of Left-leaning views provides suitable cover.

There is paradoxically a Leftist Western agenda, given that the West is meant to be Capitalist, to keep India dependent on imports in vital areas such as high technology, defence, aviation, and so on. There is obviously a lot of money in it for them.

A strong nationalist leader like Narendra Modi, not seen in these parts since Indira Gandhi, does not make this lobby very comfortable. They much prefer Congress with its status- quoist ways, populist cynicism, its vote bank politics and matching, if sanctimonious, Leftist rhetoric.

Throughout the 66 years of India’s independent life, with the brief exception of the Vajpayee led BJP years, the government of India has seen fit to keep business and industry on a tight leash as if it were dealing with juvenile delinquents.

As a consequence, we are, in India Inc. forever in potential mode, pitied universally for our folly but grandly oblivious to it. We have chosen to liberalise and reform in fits and starts over decades, with grudging, if tantalising, concessions and relaxing of controls. But this happens so excruciatingly slowly, so sporadically, that strange mutations of the supposedly original intent are strewn all over the landscape. Many on the inside admit privately that the government likes to ensure that the private sector does not grow too competent or independent.

The most frustrated with this farce cum fandango are the captains of business and industry who have been longing for some strong governmental support that so many businesses from other countries enjoy, but which is simply not available to Indian business.  They have tasted this in Gujarat and want it nationally.

There has long been a feeling amongst them that one cannot grow ever at one’s own pace because of regulatory and financing constraints, and certainly not on a large enough scale in India to be globally competitive.

Many business houses have accordingly bought companies abroad after being enabled by liberalised foreign exchange controls and external borrowing concessions, and operate substantially from these foreign bases in an international context, rather than in an India-centric manner.  

Indian business finds it difficult to be efficient at home and competitive abroad because of other bottle-necks of infrastructure, power, water, roads, ports, technology, responsiveness and speed. All this is necessary for povertarian politics of course. And the threat that it could change if Narendra Modi becomes prime minister at the head of a BJP led government is unsettling in some quarters.

Indian business however, the stock market, foreign business, some  governments who would like a more dynamic India to emerge, are waiting eagerly for this to happen.

Congress meanwhile is increasingly running scared of NaMo’s momentum, and hoping its populism will save it from being turfed out in 2014. Getting the NYT, other foreign media voices like them to put in a good word for them is part of this defence. But several others, including The Economist, have opined that Modi, is indeed the right horse for the course India must now travel. That he is some distance out in front of the BJP field is acknowledged, but not in a disapproving manner.

India has waited a long time to take its place in the sun. It is a growing hope amongst many people that the time is at hand for a decisive leader like Narendra Modi to give dignity to our suffering, a suffering that has been continuous from the midnight hour in 1947 when we became free and Nehru made lofty references to our as yet unfulfilled destiny.

There is an illustrative story, an allegory, about this endless and unnecessary wait, in the news. A musician and song-writer called Rodriguez, now 70, a one-time Tamla Motown sessions musician in Detroit, recorded two studio albums and one live one in the Seventies. His story featured in CNN’s 60 Minutes this week.

All of Rodriguez’s albums sank without a trace in the US at the time. But they travelled, unknown to him, to South Africa, then still in the grip of apartheid. There, Rodriguez was more popular than Elvis Presley.

Sixto Rodriguez was the voice of the people’s aspirations for freedom and equity in South Africa, a poet-troubadour that sang about what was in people’s hearts. Rodriguez himself had no clue about this, and earned not a penny from his popularity there.

Lately, a new age film maker, Malik Bendjelloul, traced his  story, found Rodriguez living in obscurity still in Detroit, earning his living as a labourer on construction sites, living in the same house with a wood burning stove for forty years – and a father of three lovely daughters.

Bendjelloul’s film, made on a shoe-string budget over 4 years: “ Searching for Sugar Man” (2012), opened the Sundance Film Festival this year. And in a fairy tale progression, relaunched Rodriguez’s musical career, and earned an Oscar in the documentary category for Bendjelloul.

The South Africans welcomed Rodriguez, in the flesh, to sell-out venues, fondly; but also as a Lazarus figure, because it had been rumoured that Rodriguez had committed suicide on stage, setting himself on fire in the most grisly of rock ‘n roll suicides, sometime, way back, when after the two albums were never followed by a third.

But Sixto Rodriguez was, in fact, alive and still able to perform. In America too, at last he was noticed, and went on a sell-out national tour. At last Rodriguez had some money. In his obscure years on the construction sites, he had taken the trouble to earn a college degree in philosophy and handled his life with dignity, playing his music wherever and whenever he could.

Now, on his lack of success then, in the Seventies, Rodriguez says simply that it wasn’t his time. On his iconic status in South Africa to this day, he says with tremendous self- effacement, an impressive dignity of suffering, that it is nice to be noticed.

On how he felt when his albums were not appreciated in the US in his youth, he said: “I was too disappointed to be disappointed”.

And on the here and now Rodriguez says cautiously: ‘Yes, I’ve had a good year”.

(1,267  words)

October  27^th, 2013

Gautam Mukherjee

Up,Up,and Away!

Up, Up, and Away!

Amongst all the humdrum news on an economy with so much lead sewn into its seams that it always seems to be wading through water, Mahindra Aerospace making bold to declare it will give Indians an 8 seater ‘utility’ aircraft is indeed good to know. It will be made at its brand new, Rs. 150 crore, 25,000 sq. metre facility in Kolar district, 50 km away from Bangalore.

This is the first proper announcement of a private conglomerate, and at nearly $17 billion turnover, the Mahindra Group qualifies, entering the manufacture of aircraft and aircraft components in India.

It is certainly time we started making civilian application planes here in this country, considering the strides made in so many areas. This includes not only the high tech areas of software and biotechnology and pharmaceutical discovery, but also space exploration, satellites, missiles, even submarines and aircraft carrier building, nuclear weaponry and power plants, etc.

But it is remarkable, though no more than a lack of policy emphasis, that, apart from what the government owned HAL does for the Indian Air Force, assembling military aircraft in the main, nothing else has happened so far in 66 years. The government’s efforts have been plagued by cost overruns and delay and a sad lack of technological flair.

The turbo-props Mahindra plans to manufacture initially are small utility planes, rugged in  design, developed for the great Australian outback, and good to access remote places in India - Air Jeeps in effect. This is a tremendously grounded approach and the Mahindra Group must be congratulated for adopting it.

This plane is to be manufactured in collaboration with Mahindra’s 2010 acquisitions Aerostaff, a aircraft components manufacturer, and turbo-prop plane manufacturer GippsAero, both from Australia.

Another 5 seater is slated to come on stream in due course in collaboration with government owned National Aeronautical Laboratories (NAL).

Mahindra’s recent acquisition GippsAero, has reportedly sold some 250 aircraft out of Australia to customers in the US and Europe. The GA8 is already certified in 38 countries, and Mahindra is working via GippsAero on a 10- seater turbo-prop derivative of the GA8 which will also be launched from Australia in 2014 -followed thereafter perhaps by an eighteen-seater version too.

As yet, India’s certification processes are so cumbersome, as are its duty and import structures, that Mahindra is forced, more or less, to run its aircraft manufacturing and sales from Australia.

Though, the point is, this is expected to change somewhat in the next two years as the policy attitude to private sector participation in such government monopoly areas is changing. With the  expected advent of a less corrupt if not a corruption-free government led by Narendra Modi in 2014, these sectors should get a boost. NaMo has already indicated his strong support to domestic defence production, and the private sector applications will automatically benefit alongside.

Group Chairman Anand Mahindra too likens the GA8 to the Mahindra Jeep, made in India in succession to the WWII American Willys, which has, for decades, gone where there were practically no roads. He says his utility plane, the GA8, coming up for local manufacture soon, will do likewise in the air and ground.

The prospect is reminiscent of the land and take off anywhere US made military transport ‘Buffalo’ or even the famous and rugged ‘Dakota’ of  the forties and early commercial aviation.

It is exciting to contemplate the first plane to be made in the private sector here, particularly as more and more companies and businesses in India are buying aircraft to support their operations. Even the jewellers of Kerala are reported to be shopping for Embraer jets!

And because nothing is made or assembled in India so far, unlike the high-end cars, the costs on an imported basis are naturally very high. Nevertheless, it indicates the demand is very much there in the liberalised India of today. Most electioneering is done by air these days, as is the bulk of VIP movements around the states and the country.

Mahindra’s sober scaling of its operational foray gives the project a lot of credibility. It is also eyeing, via its aircraft components manufacturing acquisition Aerostaff, and its manufacturing facility near Bangalore just commissioned, some 20% of the over $40 billion  aircraft components purchases made by the Indian armed forces.

In further developments, Mahindra has also entered into a strategic technological partnership with Spanish Tier 1 aerostructures supplier the Aernnova Group.

While Mahindra has taken the plunge first, hedging its bets between the red tape ridden defence sector, and the expected robust demand from the privates; the Tata Group, Reliance Industries and others will most likely follow suit into different parts of the defence oriented and civilian applications manufacturing industry.

The trouble is that there are powerful forces that are not in favour of local manufacture because of the significant brokerages to be earned from continued imports. There is also the matter of huge R&D spends  and constant need to initiate collaborations and joint ventures to keep abreast of, and develop new technology.

Despite this challenging ground reality, for strategic reasons, India has made a significant beginning with the manufacture of stealth frigates for the Navy for example, in addition to the more nascent mentions above; and will continue to enlarge its domestic manufacturing capabilities in the years to come.

Our neighbour China has made substantial progress in this regard and for the same compelling reasons. Countries like India and China which anchor the so-called ‘Asian century’, cannot go very far into the future without setting up its own manufacturing in areas of defence production and civil aviation.

 (932 words)

October  24^th, 2013

Gautam Mukherjee

Dark Clouds and Silver Linings

 

Dark Clouds and Silver Linings

The Sword Of Damocles has been shoved further up the calendar to January 2014, in an act of what the Americans call ‘kicking the can down the road’, resulting however in happy consequences for India. This even as the wrangling over the most beneficial insurance provisions for the poor, dubbed ‘Obamacare’ continues.

Obamacare is really what Republican challenger Mitt Romney from Obama’s second- term campaign implanted successfully in Massachusetts as its Governor, and what the Clintons tried and failed to get going during their 8 in office. So it is ironic that the Republicans should be so opposed to it.

 For now, the US Debt Ceiling has indeed been raised, for three odd months, preventing the US defaulting, and setting off a Domino Effect around the globe.

The earlier threat emanating from the US, of the intended tapering of the $85 billion per month stimulus, voiced by Mr. Ben Bernanke of the US Federal Reserve, has now been dwarfed.

But till days before, it had much of the world, particularly the emerging markets, in a tizzy of currency volatility and foreign investment flight since it was first mentioned in May of 2013. Now, thank god, it has been eclipsed, and probably rendered impossible till the debt ceiling matter is resolved on a surer basis.

 This debt ceiling business is a bigger, infinitely bigger, threat, involving countless trillions, and yet it is engineered and precipitated by some 40 petulant ‘Tea Party’ conservatives amongst the US Republicans.

The original ‘Tea Party’ activism was against the British imperial authorities, who wanted to impose a fresh tax on the stuff. This resulted in a sampling of the irate citizenry of Boston chucking the tea chests on board the British ships, probably sent on from India or China, into the harbour. But that excellent anti-colonial spirit is now being employed as a reckless bipartisan tactic in a domestic setting!

So much so, that like Virginia Woolf, no one is afraid of the taper being announced in December 2013 anymore. There is a lot of stimulus money about, more will be generated, and it will keep finding its way to opportunity wherever it may be found, including the Mumbai bourses.

India has seen, fortuitously for us at a time when we have made a sorry mess of our finances domestically, about $ 1.2 billion flowing into our stock markets this month alone from abroad, thereby raising the cumulative tally for the year to about $14.5 billion, despite the periodic flights of FII capital in between.

 Diwali, or thereabouts, could therefore see an all-time high in the Sensex, better than the 21,206 last seen  on January 10^th 2008, before the financial markets of the world began to implode with the collapse of Lehman Brothers  on Wall Street.

Nothing has been the same since Lehman became history, truth be told, and it has been five years already. First it was financial sector companies collapsing, then brokerages, hedge funds, main- street mortgagers, insurers, car companies, banks, cities in the US, and then it was the smaller European countries and so on. Nothing in the US or Europe is out of the woods yet.

 The developed world, as a consequence, is awash in stimulus money for its very survival to this date, even as India is starved of capital by its financial overlords.

 The US and the EU and their political heads and central bankers have unanimously decided their entities would cease to exist financially if they weren’t propped up by trillions in debt and counting. Nobody knows what will happen if the spigot is turned down a twist or two let alone what will happen if it is turned off. And no one is willing to try.  Classic economics has been suspended till further notice.

So it is perhaps not surprising that this very imperative is being tested as a political bargaining chip in the US, even if it is the financial equivalent of playing eenie-meenie- miney- moe with nuclear activation buttons. Is financial annihilation less final than nuclear vaporisation? Is that how it seems to some?  Caution, if not better sense however is expected to keep the gravy train in motion.

India though, along with some of the other EMs, is going to gain investment from abroad through all this, because its financial health is only artificially suppressed. In a relatively globalised scenario these days the government won’t be able to prevent this foreign money coming in, despite its obsession with inflation and high prices.  And notwithstanding its attempts to bankrupt India with a  massive welfare bill that we cannot afford.

Besides, the gush of foreign money coming in will prop up the rupee, and help reduce our deficits, both strong objectives of our government. So, never a dark cloud but there is a silver lining in it for someone, even if it is UPA II but also its successor. Narendra Modi as PM may not inherit empty coffers and a disheartened, debilitated economy after all.

(828 words)

October 20^th, 2013

Gautam Mukherjee

BOOK REVIEW: The Steak and the Sizzle

BOOK REVIEW

Title:                    Jewels in the Crown

Author:                Ray Hutton

Publisher:           Elliot and Thompson Limited, 2013

Price:                    Rs. 699/- in India, 20 Pounds Sterling in the UK

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The Steak and the Sizzle

When Ford bought Jaguar for 1.6 billion pounds in 1989 without having had the time and opportunity to do its ‘due diligence’ exercise, writes Ray Hutton, it discovered that Jaguar’s tangible assets amounted to just 300 million pounds sterling.

Red Poling, Ford’s Chairman at the time, challenged John Egan, the Jaguar boss, on the over-valuation. Egan said: ‘When you go to a fancy restaurant you go for the steak and sizzle. You have paid 300 million pounds for the steak and 1.3 billion pounds for the sizzle’.

Meanwhile, the original Land Rover ‘Defender’ had long been iconic and a world-wide hit ever since it was conceived after World War II. Its up-market stable mates, the profitable Range Rover editions went through several generations and configurations with varying success over the years. Jac Nasser, the flamboyant boss of then highly profitable Ford, also bought Land Rover for 1.85 billion pounds in 2000, from BMW, which had owned it for the previous six years.

On 26^th March 2008, Tata bought Jaguar Land Rover (JLR) for $ 2.3 billion. Ford had invested some $10 billion in Jaguar Land Rover over the years, but with multiple top management changes, ‘with very little return’ ultimately on its investment.

“The sales figures for 2007 that became available as Tata was going through due diligence indicated a record year for Land Rover and the second –highest volume for Jaguar and Land Rover combined: 286,880”. Land Rover accounted for 226,395 of the total in 2007, of which 89,000 were for the highly profitable Range Rover and Range Rover Sport. Jaguar however, was in decline. Ford reckoned a sale of 80,000 Jaguars was break-even, but Jaguar sold only 60,485 units in 2007.

Soon after acquiring JLR, the world economy went into a tail-spin in 2008 and the first signs of revival came only in 2010-11 when Tata Motors were able to show a 1.15 billion pounds profit from JLR. In the interim, Tata neither took UK Government finance with its strings attached, nor sold any of its three UK plants during the world-wide credit crisis.  Tata -JLR had survived its first major test and fast tracked new Jaguar and Land Rover models such as the reworked XF in 2008 itself, and the light SUV cum fashion statement the Evoque.

And then, JLR went in for a joint venture with Chery of China in November 2012. This company will go into production in 2014 with the smaller four cylinder Land Rover models, and a planned capacity is for 130,000 vehicles a year. Meanwhile, JLR added 7 billion pounds a year in gross value- added to the UK economy and exported 8.2 billion worth of its products in 2011.

In 2011/12 JLR generated two-thirds of Tata Motors’ revenue and over 70% of its pre-tax profit. By the half year of 2012/13 the profit percentage from JLR was up to 90%. Bloomberg calculated in 2012 that JLR was worth $14 billion. Not bad at all for a $2.3 billion acquisition in 2008. The steak has quite put the sizzle in perspective.

This tremendous success is predicated on Ratan Tata’s vision to chart a separate path for a premium product and set of marques rather than try and marry it to mass market car production. Ford had got this conceptually wrong, and going the same way for Tata Motors would have been worse, with its tired domestic models and less than international quality.

There are new moves being explored for production in Saudi Arabia, a possible source of aluminium from its giant plants there, production in Brazil, and in the ‘second home country’ of JLR in India, where  some assembly operations to cut tax burdens on the Jaguar XF and the Freelander are already underway.

The trick, in the years to come, Hutton implies, will be in not tripping up the chemistry of the brands in the belt-ways of mass production. Besides, the competition is soldiering on too, most notably amongst them is Audi which has made a success of leveraging its vast hinterland of VW components.

The author, Ray Hutton, a former editor of Autocar, UK, has written an easy- to-read romp through the JLR story, not delving too deep into the minutae, nor over- analytical on the whys and wherefores of many top management decisions.

He has taken the stance that many automobile industry top executives are really artists and visionaries steeped in the culture of making cars. The big difference in the muddle of the earlier JLR saga, under early days of private ownership, later British Government ownership, BMW/Ford, and finally, the highly successful Tata ownership, is in very few top management changes. That, and a willingness to plough back profits to give the brands the investment they need, good strategic management, but an operationally hands-off approach.

(800 words)

October 19^th, 2013

Gautam Mukherjee

Price Is A Random Walk

Price Is A Random Walk

The new Nobel Laureates for Economics 2013 just announced; the prize is shared by three American professors, two from Chicago University and one from Yale. They think variously on economic theory and on the co-relationship between Price and Assets, but together, over 50 years, have contributed much to the world’s understanding of how prices of assets behave. This includes stocks and real estate.  The only thing to remember is that time seems to be accelerating and breaking free of its contexts, and what is probably most relevant is the last five  or seven years.

Two out of the three, Chicago University professors Eugene Fama  who distinguishes between unpredictable short term price movements and a more rational long term, and Lars Hansen,  have done extensive work predicting price-asset movements over the long-term, and believe there is a workable pattern that led to much indexing of mutual funds etc.

But the third winner, Robert Schiller from Yale, thinks there is an embedded wild card, that the stock market is no ‘weather’ indicator, and coined the famous term “irrational exuberance”.

 Robert Schiller of Yale thinks Real Estate is amongst the worst possible investments if one is expecting it to turn into a cash cow, with say, importantly this is in the American context, a 10% increase in value every year. He thinks this is illogical, because eventually all property would become unaffordable if this were to happen year on year.  He is obviously not familiar with 20% Indian inflation year on most years!

Schiller also thinks the property price increases, a doubling, between 2000 and 2006 brought on by very low mortgage interest rates are not coming back till the 2030s in the US.

This, as the doubling went down by 35% after the ‘bubble’ burst post 2006, and is now at some 22% down from that all-time high. Schiller thinks that property prices don’t really go up but just keep pace with inflation and here he might well be making the bleakest point in economics.

Schiller thinks property prices in the US are being supported still by low interest rates. He does not think interest rates will rise very much and cannot predict what would happen if they did. He also thinks land in America, with some down-town exceptions, only accounts for some 30% of the price of property, and that new property using new technology in its construction, is favoured over older construction.  He has even devised a Property Index, the Case-Schiller Index put out by S&P and conducts regular polls and surveys on real estate.

Much of this excellent Nobel quality international economic logic does not seem to apply in India. Property prices here keep going up relentlessly despite high interest rates and difficult borrowing terms for loans, both short and long- term. Our land prices are the main thing. We see old houses being knocked down all the time in very expensive prestige locations down town in our Tier One cities to make way for swanky and pricey flats.

The situation eases in the distant suburbs and in the Tier Two and Three cities and towns but the broad principles of Indian real estate apply there as well. And no ‘bubble’ or crash in prices is expected to last because of the pent up demand at least for residential accommodation. The international logic does however seem to apply to the sharp rise in supply of commercial property but there again it is seen as a possible lag before demand catches up with supply.

The RBI has been worrying about a property bubble for quite some time now and has made it tough for the real estate sector to borrow. This has certainly restrained the speculative element in the market though without seriously denting the prices. The sentiment  is too strong to be affected by doomsday logic and our demographics provide a very real demand scenario as does the fact that everyone now, each unit member of a family almost, wants to personally own the roof over his head.

Indians believe deeply in property and gold. No Nobel laureate from a country far far away is going to change their minds.

So it came to pass, in malodorous Mumbai, equal parts slum and El Dorado, billionaire investor Rakesh Jhunjhunwala has just bought six sea- facing flats from Standard Chartered Bank for a total of Rs. 176 crore. Five of them are about 2,500 sq.ft. each, and the sixth is a duplex at nearly 5,000 sq.ft. and together constitute half the building, half its underlying land and 7 garages.

Rana Talwar of Yes Bank bought a single flat in Mumbai’s Altamount Road for 128 crores a little while ago, and there have been several other high value deals, mostly between corporate honchos in Mumbai, even as the average rate of appreciation of well- located real estate there has declined from 30% per annum over the last three years, to just 10% now.

Gross rentals are returning a mere 3% of property value in a soft market but that is no longer material given the capital appreciation game afoot.  Nevertheless, the estimated net worth of notables that live in the Malabar Hill area, where these stellar transactions are going on, is about $30 billion, and that too provides a certain bouquet to the new entrants.

This dollar figure may not impress the Americans but let’s face it, it does impress us. But everyone, the above notables beyond being buffeted by market swings amongst them, expect things to get better soon. We are a country on a leash, and the recent inflow of FII investment into the stock markets seems to acknowledge this. The locals are despondent still, and are net sellers. Morgan Stanley expects this pessimism to lift shortly.  

When the rich buy real estate at these astronomical prices, they are also saying they expect a decent return on investment within a reasonable period of time. So there is an up and up expected and never mind Schiller. And so, the real estate juggernaut goes on, with the full range of wares from affordable housing in the sticks to the astoundingly luxurious in the centre of Malabar Hill.

Much quality and iconic real estate in Mumbai is coming on stream from the old premium companies and banks that used to provide their executives excellent housing as a perk in the 1960s and Seventies. Now, the same companies and banks are busy monetising their assets which have grown thousands of times in value. We cannot represent the rise in percentage terms, and the thousands by way of multiples is not an exaggeration. So it’s no wonder the relatively new billionaires like Jhunjhunwala are not shy to step up to the plate.

Perhaps Mr. Schiller needs to study the Mumbai market for its ‘irrational exuberance’ too, but like many things Indian, it may force him to re-evaluate his fundamental beliefs!

The mantra goes that property price surges are cyclic in India, and when they eventually start lifting they make up for all the waiting time very handsomely. One can’t really go wrong, and anytime at all is a good time to invest in  Indian real estate.

(1,195 words)

October 17^th, 2013

Gautam Mukherjee

Sometimes The World Is Kind To Mavericks Too

Sometimes The World Is Kind To Mavericks Too

The Jamait Chief Syed Mehmood Madani, accusing the Congress Party in the main, of trying to scare Muslims, has performed a signal act of truthfulness and courage. Madani says Congress, and others like the Samajwadi Party, are trying to create a spurious Narendra Modi bogey.

After all, there have been many more pogroms and riots involving Muslims and other minorities, including Sikhs, in Congress ruled states over the years. But throughout, Congress has proved unable to protect the very minorities it has extracted its votes from. The Congress may prefer to be blasé about this, but the Muslims of India may have had enough of being duped.

For it is not every day that a senior and respected voice from the Indian Muslim community speaks up like this, without prevarication, and in crystal clear terms. The same Mr. Madani had earlier taken issue with the then Deoband Chief, Maulana Ghulam Vastanvi, leading to the latter’s ouster, in February 2013. Vastanvi had done no more than make a similar a pro-Modi  remark.

So Madani’s dramatic and pointed turn- around and change of stance now may have been occasioned by the   anguish and disgust generated by the recent highly political Muzaffarnagar riots. Mr. Madani could well be raising his influential voice to express the anger of the Muslim rank and file against the insincerity and manipulation of the so- called ‘secular’ parties.

Timing his statement to the media, shortly before a slew of Assembly elections, and just after Eid Al Adha, Madani probably intends to signal the restiveness of the Muslim about the traditional vote-bank politics.

This could be a protest against the hoary tactics practiced by parties like the Congress, The Samajwadi Party, the Janata Dal United and sundry others, some who could even end up in the NDA post- elections.

Combined with Mr. Sharad Pawar’s recent remark about how no political party should be regarded as ‘untouchable’ in a democratic polity, the old sureties seem to be under strain.

The NCP is an uneasy and untrusted Congress ally in Maharashtra, and disenchanted with its role at the Centre. It may be looking to redefine the hidden code that tries to suggest that secular means Congress and communal means BJP.

Other words of praise has come  Narendra Modi’s way from  Ms. Jayalalithaa of Tamil Nadu, both Chandra Babu Naidu and Jagan Reddy  from Andhra Pradesh, who think highly of his development record and are keen on his even-handed leadership, and former Chief Minister BS Yeddurappa of Karnataka.

But the old certainties are definitely shifting ground. The Congress cannot be sure of its support base anymore, not amongst the voters or amongst the regional parties, nor its supposed patent on ‘secularism’.  

The handling of Hurricane Phailin, with over 5 lakh people efficiently evacuated in 48 hours, with just 23 known casualties so far, compared to over 10,000 dead in the last cyclone of 1999, is highly commendable.  

If Patnaik, along with other leading lights of the ‘third front’ find they have too many generals and not enough soldiers, it may be just as well for the BJD to rejoin the NDA and play a stellar role in its government.

And not everyone in the regional line-up that are comfortable at present, will fare equally well in the general elections. Some will be affected by anti-incumbency, others like Mr. Lalu Prasad, by the new stringent anti-criminal strictures.  Their interrelated numbers will change. The equations between the possible third front constituents therefore are necessarily in flux.

The Jamait Chief meanwhile, is saying that Muslim Indians have every right to choose their new government in 2014 freely, fairly and without pressure. Madani said Muslims are not like ‘batasha’, designed to melt if a little water is poured on it.

Meanwhile, every bit of Congress sponsored Welfarism, designed to deliver UPA III is failing because of rampant corruption.  The children’s mid-day meal scheme kills children around the country. The Public Distribution System distributes food and grain mostly to the commercial markets rather than the intended recipients.

The fact that youth form the bulk of the electorate this time, will mean that the old formulaic politics will be automatically challenged both in the urban and rural areas. The aspirations of the young for a decisive leadership that can deliver growth and development is what is attracting millions to Narendra Modi.

They prefer the 64 year old NaMo’s dynamism and energy to the younger but uninspiring Rahul Gandhi and his party of old war horses and largely untested dynastic yuppies.

The Indian people may be maturing in ways not too comfortable for its largely aged political leadership unable and unwilling to grasp new realities. It is no good for them to dwell on poverty and victimhood when the relentless glare of media exposes their own opulent lifestyles and high-flying ways.

These very people who claim to feel for the poor and minorities live protected, sanitised and deodorised lives, far removed from all their professed concerns. Many are indeed far more comfortable when they can get away abroad to enjoy their wealth out of sight. The voting peasant and the slum dweller know this, perhaps they always have.  But now, being young and aspirational, they will not tolerate blatant non-performance given an alternative.

And the corruption on top of the hypocrisy is hard to bear when coupled with the chimera of aam aadmi  sloganeering, the political content of which is a confection made of many self- serving fantasies, none of which have anything to do with the actual common man!

The Mufti Mukarram of Fatehpuri Mosque in the Capital, commenting further on Madani’s remarks, says the fabric of secularism is strong enough now to persuade a Modi to moderate his stance if he wins. This had to be done by then fire-brand LK Advani  when he became Deputy PM and Home Minister, and it will be the same for Narendra Modi, should he become prime minister.

Other pro-Modi Muslim voices such as Editor Shahid Siddiqui of Urdu weekly Nai Duniya are also saying they have had enough of pretend politics with regard to Muslims. Muslims are the most backward and economically depressed people in the country, says Siddiqui, behind Dalits, behind everyone.  

These confident and properly secular ‘minority’ voices of India, may have realised that it will take a Narendra Modi to help Muslims take their rightful places amongst the empowered and prosperous of this country.

Besides, if the 175 million Muslims and 50 odd million of other minorities are truly brought into the mainstream, Pakistan may have to look elsewhere to export its terror.  

  (1,096 words)

October 15^th, 2013

Gautam Mukherjee

Shut-Down, Possible Default in the US & Rural Rescue At Home

Shut-Down, Possible Default in the US &Rural Rescue At Home

The longest monsoon in two decades is slated to result in farm production growth of 5.5%, up from some 1.9% last year according to a recent report in the Times of India.  A media savvy Governor Raghuram Rajan at the RBI has seized upon this information and projected farm growth at an average of 3.8% going forward. This, as opposed to 1.9% in the rear-view mirror, thereby adding its mite towards the raising of the country’s annual GDP- bottom-line, he is projecting over 6% for the next fiscal.

The truth is, these are projections, if true, that that won’t show results till well into 2014. But the Government, besieged with bad news on most fronts is busy playing up the likelihood of rural prosperity, fleeting as it might be, and only relative to context. It needs some sunshine on its damp squib of a poll plank creaking with anti-incumbency.

Combined with increased farm labour wages, due unfortunately to inflation, and high produce prices, due presumably to inefficient and corrupt distribution, it is estimated that the rural population will have 20% more money this year. And also that the farm production growth will add 0.5% to the country’s GDP.

Overall, GDP is widely estimated to end up at a low, varying from 3.8% to 4.8% or even 5%. Still, this half per cent from the farming sector will be most useful. Food prices may also come down but that depends partially on the rupee value and the price of imported fuel too, and may not happen before the general elections. Besides, will this rural bonus continue into the middle of the next year? Let us remember it is attributed to the unusual largesse of the rain gods this year.

Meanwhile, The United States drifts ever closer to a possible default on its debt obligations if the debt ceiling is not raised by US Congress by the 17^th of October. India is fretting about its $60 billion invested in US Securities, and China is worrying about its several trillion invested in the US Treasury Bonds likewise.

Some say the US Government is holding enough tax revenues to pay its interest obligations on its debt, but there are many other things, government and military personnel salaries and so on that will be affected. Besides it is alarming to the world’s monetary and economic systems to see its main mast wobbling like this.

The  ‘Shut down’, now over 12 days long has cost the US Government several billion in lost revenue at its parks and museums, in visa and passport processing charges, in back-pay for furloughed employees sitting at home and so on.

It is an extraordinary face- off between the Republican dominated Congress/ Senate and the Democratic Party’s President. Words like ‘polarised’ and ‘partisan’ are much bandied about, with very little give and take between the two major parties in the US.

The net result is a kind of ‘policy paralysis’ of its own, but the rest of the world is anxiously waiting for a resolution because if the US does default it will have catastrophic consequences around the world. It is relatively uncharted territory but more and more countries and their governments could succumb to ‘systems failure’ in a variety of imaginative ways.

While central bankers and finance ministers from around the world are buzzing about in Washington it is essentially a domestic play in which they are all no more than highly interested spectators.

A ‘default’ has not happened in the US apparently since the 1700s, meaning the early days of the republic, though a shut-down did occur, twice, in the nineties when the GOP took on the Clinton administration.  

That the Republicans should oppose ‘Obamacare’, which provides health insurance to the masses who cannot afford private medical insurance, to this extent of brinkmanship, is extraordinary and somewhat crude.

In India, by way of contrast, both the Congress and the BJP came together to vote on the Food Bill and the Land Bill as they were seen to be of benefit to the masses. The BJP said that both bills needed to go further, and that they were pledged to deepen and widen them if it came to power.

Clearly, our polarisation, for all its bluster, is not in the same league as their polarisation. And perhaps the most populous democracy in the world can give a tip or two to the richest one, on how to resolve contradictions and paradoxes.

Our Prime Minister mild-mannered, used to the slings and arrows of jeering colleagues, yet far from loquacious, would probably tell Obama that there is little mileage in cutting off one’s nose to spite one’s face.  It’s too bad he would probably have no occasion to speak to the far-right ‘Tea-Party’ elements in the Republican Party, who have been powering this confrontation. Meanwhile, the Afghan Taliban, that understands only the democracy of violence, is reported to be laughing at the Americans. Well it might. It cannot imagine such freedom to disagree with impunity in all its born days.

(837 words)

October 13^th, 2013

Gautam Mukherjee

The Governor Relents

The Governor Relents

It is indeed a relief to see Governor Raghuram Rajan at the RBI beginning to ease up on the liquidity. This is essential for growth, even as the IMF expects barely 3.8% growth in GDP this year, down from its earlier estimate by a dramatic 2% points, but going up to 5.1% next year. Of course, even 5% odd was a 10 year low when it happened last year, and therefore the current dip estimated is all the more significant. It shows the Government’s economic policies are just not working.

If the RBI keeps easing up on liquidity like this, and bringing interest rates down, and the Government makes some growth- friendly reforms, we could be rolling once again. Most commentators have warmly welcomed the RBI’s latest initiatives, and are urging Mr. Rajan to do more as soon as possible.

The RBI however is saying this easing is not a change in its stern stance with regard to inflation, hovering around 11% per the IMF this year, and expected to remain at around 9% next year, but since the rupee has appreciated some 8.76% from its nearly 69 to the dollar, some easing of the stranglehold imposed in July has been made possible.

And the deficits are indeed coming down; the CAD is expected to be contained at $70 billion, down from $85 billion last year, ostensibly because of less gold being imported. Exports are growing and trade deficits are also down on top of some core sector growth. But this is still good in so far as things are not getting worse, but hardly good enough.

Any jolt from the US, either by way of a looming default on its debts after its current ‘shut-down’, or the beginning of ‘tapering’ of its stimulus, could set off another round of currency crisis and sharp disinvestment by the FIIs. We will just have to keep our fingers crossed on these external threats beyond our control.

The Government that will make the difference in terms of growth strategies will have to be the new one after the elections in 2014, and hopefully run by the market friendly Narendra Modi.  NaMo will not need to be goaded into development. It is pretty much his calling card and claim to fame.

But to make a dent in our poverty statistics, we need to get back up to 8% per annum, and try and go into double digits and sustain it for a decade or more, China fashion. It is eminently possible, again per the Chinese model, provided we open up and sweeten the deal for the infrastructure sector that needs trillions of dollars in investment.  

Mr. Rajan says he will build the financial structure to attract these trillions of dollars into infrastructure over the next three years of his tenure. And the Government also must see to it that land acquisition for infrastructure development, always a major stumbling block, is done at a fair market price, and does not get mired in controversy and litigation.

Of course, some of the Chinese growth has come from exports, and there our future possibilities are good, even if our track record has been very modest so far as a whole. Software, BPOs and diamond polishing and re-export has done well for the main part, as has automotive parts, but much more can happen.  

Especially given our ample and intelligent work force, both skilled and unskilled, our educated white collar resources,  and familiarity with the English language.

India can become a manufacturing hub for many things, given the infrastructure, roads, rail, port and airports, metro- rail, power, water, and communications. The Japanese certainly think so, and are working with us already in the Delhi-Mumbai Industrial Corridor (DMIC), and so do the Koreans. And their eye is not just on exports, but the sizeable domestic market also.

In Defence Production, the Americans, The Israelis and Europeans know there is a massive manufacturing opportunity and some of the largest domestic demand in the world.

The area of agricultural services, and value addition, where we need to sweep up everything from statistically insignificant growth percentages of 2 or 3% to about 10% per annum, is, as yet, in its infancy, with much wastage to contend with.

Many agriculturally advanced countries of the West are interested in helping us grow this market, given that India is already a massive producer of vegetables, fruit, wheat, rice and cotton.

The future is bright as long as we stop our navel-gazing and malingering, and take bold steps to fast track growth via a new and energetic government that is strict on corruption. It is also good to find that the RBI is making some moves to facilitate this outcome.

(784 words)

October 9^th, 2013

Gautam Mukherjee

Primer For Reform

BOOK REVIEW

Title:  INDIA’S TRYST WITH DESTINY- debunking myths that undermine progress and addressing new challenges

Authors:  JAGDISH BHAGWATI & ARVIND PANAGARIYA

Publisher:  COLLINS BUSINESS, an imprint of Harper CollinsPublishers, 2012

Price:  Rs. 599/-

Primer for Reform

It is an irony that defies common sense; why a country with a massive population, should stubbornly defy market economics that affords it the only chance to prosperity.

And yet, right from Nehru’s ‘Tryst with Destiny’ speech at independence, we have persisted in trying to redistribute inadequate wealth to alleviate the sufferings of our numerous poor, according to the romanticism, if not the wooliness, of Fabian Socialism.  Today, 66 years later, there are in fact competitive narratives, both from the Right and Left.

The results of Reform, such as they are in India, have been nothing short of dramatic, despite much second-guessing and hesitation. But the power that must be surrendered to the people when thickets of regulations and oversight are dismantled has been the sticking point for our political masters.

Eminent Economist and Professor of Economics at Columbia University, Jagdish Bhagwati, and his distinguished colleague and collaborator Arvind Panagariya, also a Professor of Economics and Indian Political Economy at Columbia, have written a most useful book championing reforms and the benefits of market economics.

 India’s Tryst With Destiny is a well-researched and structured primer designed to debunk many of the propagandist positions adopted by the Left against the perils of Liberalisation. It uses Nehru’s words to assert that the economic tryst with destiny remains far from fulfilled, even now.

It is most encouraging however to see the optimistic tone of the book, in chapter after succinct chapter, where the line “Contrary to what the critics assert”, or its variation, appears repeatedly, before proceeding to explode yet another popularly held but negative belief, such as, there is an accelerating trend in “farmer suicide rates from 2002”. Or that the post-1991 reforms have led to increased corruption.

Bhagwati and Panagariya assert:  “Corruption broke out, not with the liberal reforms of the 1980s, but under the licence-permit raj that peaked in the 1970s”.

The authors contend that the “mega corruption cases” witnessed lately are because the “success of reforms has opened up new opportunities in several areas to make profits”. There are “pre-reforms-type arbitrary and opaque allocations of the rights to extract minerals and the acquisition and resale of land. The 2G scandal offers a dramatic example of how the success of past reforms (in opening up new opportunities to make profits) and the failure to extend them to cover these new opportunities) have combined to produce a mega scandal”.

So, “The most effective course of action available to the government to curb corruption, therefore, is clearly the deepening and the broadening of the reforms to new areas”.

The Bhagwati/Panagariya view, often seen as the intellectual inspiration for the systematic reforms process commenced in 1991, is at loggerheads with the arch-Leftist/Welfarist Amartya Sen/Jean Dreze vision, even as the latter have recently written a book together too.

The Sen/Dreze viewpoint has influential followers particularly in the National Advisory Council (NAC), chaired by Mrs. Sonia Gandhi. They are very persuasive too. Jean Dreze had this to say, for example, on the virtues of the Food Bill: “ Statistical hocus pocus has been deployed with abandon to produce wildly exaggerated estimates of the financial costs of the bill”. Amartya Sen said: “ Every week that the food security bill was not passed was causing 1,000 deaths”.

Bhagwati, the co-author of this book, ever true to his market-friendly principles,  has not hesitated to critique the anti-liberalisation-pro-Socialism book written by Sen and Dreze: “The put-down of attention to multinationals misses the point that India’s economic reforms require precisely that India join the Global Age and that India’s inward direct investments were ridiculously small in 1991”.

Is the Bhagwati/Panagariya- line winning out? After all, Bhagwati in particular is credited with being the intellectual mentor of India’s economic reforms. And for the  populist dreams of the Left to come to fruition, Bhagwati & Panagariya style market economics must be allowed to grow the economy.

To date, the sway of the reformists is admittedly somewhat patchy, but despite that, the difference already made to our economy and standard of living across the board, is indeed compelling.

It is also tantalizing, because of what we have accomplished despite the ambivalence and adverse propaganda. How much more can be accomplished provided we stop prevaricating and follow the market-friendly prescription?

This book is written in the style of a manifesto or political pamphlet, with a huge reformist passion though affable. It is careful not to sink into dry jargon even though the academic depth of both its authors could easily have pointed them in that direction.

They, and their views, may well enjoy greater acceptance in the event the Right of Centre Narendra Modi comes to power in 2014, with enough strength to adopt more of their formulations for the benefit of our economy; and our rightful place in the world.

(798 words)

October 7^th, 2013

Gautam Mukherjee