India Is Ready To Rumble

India Is Ready To Rumble

Inexorably, fate follows thread/ From spindle to the shuttle running

Catallus

 The Indian elephant has begun to rumble forward, trumpeting out its intent. There will be a paramount focus on the poor. Prime Minister Narendra Modi understands it is they, who need the Government most. Agriculture, which takes in half the population, more than 600 million people, only contributes 17% to GDP. 

It is cribbed and confined, in parts of the country, to a time-warp more appropriate to the 18^th century. It is rural India, with its massive productive potential, that the Modi Government will change most drastically.

This country cannot afford to live in two worlds as ‘India’ and ‘Bharat’ any longer, even as the urban population has swelled to 50%. The urban-rural dichotomy is making a travesty of our ‘demographic dividend’, creating an apartheid of ill-educated or illiterate people from the provinces, and badly educated ‘unemployables’ from the urban regions. The foreigners know this- Indians may be cheaper to employ, but they certainly do not come ready-made!

Meanwhile, the economy is both askew and in a mess. The Service Sector accounts for 56% of GDP because it needs the Government the least. Manufacturing, on the other hand, firmly in the governmental sway, is languishing at a paltry 15.7%. It may be the major job generator, but little has been done to promote it. The forthcoming full budget is expected to shower incentives on it to get it going again. Modi knows that a nation that ceases to manufacture and depends only on trade and its wits, is actually dying on its feet.

This notwithstanding, this Government’s major thrust on e-retailing will be a great boon to the traders; a way to cut costs, particularly on real estate, while delivering value.

Construction, accounting for 17.5% of GDP, with its massive train of suppliers – of planning and architecture, steel, cement, sanitary-ware, windows, doors, glass, taps, showers, geysers, fans, lights etc. is suffering high interest rates, low demand, massive inventories, monumental debt, and the avarice of Government corruption. It is crying out for a boost and a rebooting, and it is about to get it, mostly via a fillip to the infrastructure sector.

Our education system is poor, out-of-date, bureaucratic, and the demand-supply ratio within it is nothing less than horrific! It needs to let in the winds of change. The opening up will have to discard the cant of treating it as a social obligation. It is a commonplace that private schools and colleges, if one can get through the thicket of people to bribe for clearances, are money-making machines, disguised as trusts and societies. The sheer lack of enough educational institutions, both government-run and private, is either typical Indian inefficiency, or the supremely cynical and deliberate act of creating a shortage in order to exploit it.

 To uplift the rural areas of India and their burgeoning towns, Education and Health must play a big role.  This Government will see to it that others do not have quite so hard a time of it as Modi himself has had to endure. It will raise the economic base-line, inclusive of Health, Education, Connectivity and Infrastructure, so that the great divide between rural and urban, India and Bharat, becomes a thing of the past.

Incidentally ‘Health’ accounts for very little GDP right now, even as it grows at a rate of 13.4% per annum on its low base, and employs a meagre 4 million people. This needs to be ramped up exponentially and has tremendous ‘medical tourism’ potential, even in those 100 new cities planned for ‘rurban’ India.

But, of course, we will need lakhs of new doctors, millions of medical professionals in diagnostics and the like, and legions of new nurses. This means dozens of new medical colleges too, and a private-public partnership to bring in efficiency, because right now, the  privates account for 75% of the medical industry. There has been a general abdication of the Government in this area, notwithstanding the new plans to set up a dozen AIIMSs around the country.

Meanwhile the Modi Government is certainly getting on with it. The PSU banks are selling off their accumulated bad debts, cleaning up their books to make ready for new business. Sick PSUs endowed with generous physical assets are being spruced up for the big sell-off. And even the profitable ones have been instructed to dilute their holdings by selling 25% of their stock to the public. Black money stashed in Swiss and other havens abroad is being winkled out, though it remains to be seen how much money actually comes out of it.  

Railway fares and rates, disgracefully kept in abeyance to the point of near no return, have been firmly increased. The bourses themselves, already up 25% on billions of dollars of FII investment into Indian equity and debt, are anticipating the raising of over Rs. 1.25 lakh crores in capital. This, after a catatonic Primary Market, ever since 2008.  The Debt Market too is being enlarged to receive more foreign investment. Angel Investment Funds, foreign and domestic, are also on the prowl, looking for the bumper profits that their sizeable risk appetite demands.

Many sectors of the economy, most notably Defence, the Railways and Infrastructure are going to get 100% FDI in new projects. This trio alone has the potential of pumping trillions of dollars into sorely needed expansion and modernisation programmes.  The Indian Railways, a backbone that connects to the movements of people and freight all over the country, and a vital strategic necessity , is today, sorely in need of rescue from the abyss.  Modi has big plans. He calls it the ‘Diamond Quadrilateral’, echoing PM Vajpayee’s visionary Golden Quadrilateral initiative.

Defence is slated to buy $300 billion of armaments from abroad, making India the biggest armaments purchaser in the world. If some of this is made in India soon, it can make a tremendous difference. 

As for infrastructure, almost everything is in short supply and the to-do list is very long.  Yet Modi’s Government intends to attack the deficits on all fronts simultaneously.

The NDA Government must eliminate unproductive expenditure to improve its finances. This means reducing and eliminating unaffordable subsidies, cutting back on inefficient and poorly targeted welfare programmes and wasteful Government expenditure.

With increased FDI investment, as confidence returns, the rupee is also expected to strengthen. Some reports think it is currently undervalued by as much as 33% in purchasing-power-parity (PPP) terms. This should have led to a flood of FDI, but obviously the foreigners didn’t think much of our governance or policies. This perception, above all, will now change beyond recognition.

  

(1,102 words)

June 24^th, 2014

Gautam Mukherjee