Unequal Destiny

Unequal Destiny

Jawaharlal Nehru spoke of a ‘tryst with destiny’ in his midnight speech of August 15^th, 1947. He was mostly referring to the emergence as an independent nation after 200 hundreds years of British subjugation, rather than India’s future.  

But today we might well ask, what is that manifest destiny, after 67 years of disappointing results? Are we to be desperately poor always, at least from the perspective of over a third of our number, and forever missing the woods for the trees for the rest?

China must have thought similar thoughts after years of tumult and perpetual revolution under Chairman Mao which ended up killing 30 million of their own as ‘dissidents’. This, without however bringing the survivors and successors any closer to the Communist goal of equality and shared progress.

Not until, that is, they threw the unworkable ideology out in practice, and turned instead on to a determined capitalist path in all except name. Deng Xiaoping defanged the notion of profit and prosperity within the Chinese lexicon, and gradually, over 30 years of double-digit growth, China has emerged as the second biggest economy in the world.

But there are some inherent advantages in the Chinese system. The one party supremacy of the ‘Communist Party’ still runs China. This all-powerful body does not have to bother with ‘political freedom’, public opinion or electorates. And its bosses, chosen by an opaque internal process, can both take decisions, and ensure their implementation in quick time.

Can an India run by an avowedly market-friendly Narendra Modi, with the first parliamentary majority in 30 years, do what hasn’t been done so far? If Modi’s Government endures for at least the next ten years, can India catch up to China economically?  

Presently, India may be out of the list of habitual recipients of international aid, but it still needs foreign money to fund its ambitions. What is possible, is considerable progress and growth going forward. Our growth percentages from a low base will soon look marvellous. But they won’t add up to a total greater than China’s is today for decades yet.

Meanwhile, the latter will continue to grow on its much larger base, their $6 trillion to our $2 trillion. China will henceforth grow at a slower pace, because its exports are down, its domestic infrastructure is largely built, its banking system somewhat over-extended, and the domestic consumption story still a work in progress.

However, it is investing massively, over $100 billion worth in other countries. It may still account for around 7% per annum going forward. It is also today the world’s 5^th largest high-value arms exporter  and a formidable nuclear enabled military power, and these things too provide excellent economic leverage.

If India ramps up to its former 9% annual GDP rate or more, and sustains it, our year-on-year growth rate will certainly surpass that of China’s, and make India the fastest growing economy in the world. This much could well happen before the end of the first five-year term of the Modi Government.

But even talk of returning to 9% or breaking through to double-digits is possible only if India discards its incremental approach and implements bold reforms. We simply do not have the domestic capital to fuel our growth needs.

And our short-comings at present are many. We rank 60^th in economic competitiveness, much lower than China’s 29^th. Public Health and Education puts us at No. 102 in the global reckoning. Transport, communication, electricity has us ranked 85^th. The Labour is qualitatively at rank 99^th , grossly under-skilled and protected by rigid laws.

We therefore have to drastically improve many things to facilitate foreign investment. Exponential growth can indeed happen if India makes policy decisions and implements its vision like Dhirubhai Ambani did once he got started, with the same pragmatism and fire in the belly. But we have to bear in mind that this is an unwieldy democracy and that times have changed.

We will not be able to fuel this growth in 2014 onwards via low unit value but high volume exports to the US and Europe as China did, using the Nixon-Mao détente and most-favoured-nation treatment. Instead we may have to populate the country with many more manufacturing enterprises in a variety of fields, most of them designed to cater to domestic demand.

The boom years in the US and Europe, and their insatiable erstwhile market demand is over.  Things are much more subdued now. India, starting now, will have to export high-value goods and services instead. These might be armaments, vehicles and auto components manufactured here, but pre-sold because of their international branding and technology.  Then there is the IT, but it will face its own headwinds from US technological superiority beyond a point unless Indians buy into Silicon Valley to operate on both sides. And of course our diamond cutting and polishing trade, fuelled by Indian owners in Antwerp. The  garments likewise with Indians out of Hong Kong leveraging their reach, craft items etc.

But if today exports account for 12% of our GDP and IT and services 56%, these percentages will not alter radically, even as they will represent higher absolute figures. Our near total dependence on foreign oil will keep our economy under pressure until alternatives are found from perhaps our own shale deposits, new gas and oil finds, thorium based nuclear power, hydro, wind, solar and so on.

Our diplomacy will need to deliver better commercial terms to facilitate trade. And India will have to ramp up its ability and cater to a huge domestic market with an appetite for sophisticated and technologically driven products and services. Our own internal consumption potential is a great strength and we need to exploit its power.

At the end of the day, India can certainly join the ranks of the top ten economies in real terms because of its physical and demographic size, and the distance already travelled with regard to its potential. But if it wants to be in the top five, or even three, it will have to change its ways beyond all recognition. Many however think of Modi as India’s Deng, and just the man to bring about this transformation.

(1,028 words)

July 26^th, 2014

Gautam Mukherjee

The Man And The Message

The Man And The Message

The 1.3 million Indians, then loyal subjects of Maharani Victoria, who sailed overseas to fight in the ironically billed “ War to end all Wars”, aka WWI, will be remembered by an Indian Government, at last, on Independence Day 2014. 

Prime Minister Narendra Modi will recall the brave-hearts who  went to war one hundred years ago.  Modi will honour these men in all those centenary photographs, from the ramparts of Red Fort on August 15^th, 2014.

This upcoming mention from a staunchly nationalist prime minister in his first Independence Day  Speech, is indeed a fitting salute. And to top it all,  it comes from an administration that is deeply committed to national security,  the Defence Forces, its equipment, its logistical supports, manning, training, procurement, dignity; the entire Defence Sector in general, and the start of a much-needed Indian defence industry, in particular.

There is also a new War Memorial budgeted for by Finance Minister Jaitley, not just to remember the brave martyrs of WWI,  mostly accounted for at India Gate by the British; but the many new shaheeds, lost to us in peace and war, since Independence.

And Prime Minister Modi will deliver the remembrance, not from the mock-up Red Fort on which he practiced being PM as CM of Gujarat, but the real McCoy, in Delhi, with the solid redstone ramparts- attended by his cabinet, parliamentarians, diplomats, children, assembled guests, the sarkari  AIR, DD, and the global fed-gaze of satellite television.

PM Modi is likely to talk about many other things, perhaps arising out of his recent directives to all the ministries, his over-arching and transformative 17 point programme, as exciting as it is ambitious. Everything about the Modi Sarkar, with so many initiatives, is now down to the implementation, but there is absolutely no fear of falling short on the part of the man.

However, there is a marked difference in how NaMo goes about his messaging. He is not interested in aggravating speculation, or even debate, as he goes about his business. The private media must be satisfied at the controlled feed he provides it, and even within the Government, Modi is known to play his cards close to his chest.

To tell what he wants to tell, he has been using only the Government agencies of the DD and PTI, and of course, Twitter and Facebook. This messaging is clearly limited, controlled, and one-way, and interactive only at once-removed. Send in your questions and comments, he seems to say, and they will be attended to.

This echoes Modi’s essential media strategy during the election campaign, when every TV channel covered his speeches, but he gave no interviews till just before the end. And no press conferences at all.  This was done, let us be clear, in tandem and harness with some very expert PR advisers from home and abroad, and to resounding success.

The private media, print, internet and satellite TV, mostly populated, as of now, by dyed-in-the-wool Congress acolytes, is being kept away. This is the case from day one, May 16^th, right from the  SAARC attended inauguration, the first bilateral visit to Bhutan, and that to the BRICS Summit in Brazil, before and after the budgets, when we saw the FM and PIB men explaining things to newsfolk, and onwards.

The bulk of this private media, over 80%, has, after all, tried its best to spread disinformation, on the Godhra Riots 2002, the fuss about Modi’s apology or lack thereof, the pinning of blame flying in the face of the Supreme Court’s clean chit, the distortion of his “puppy-dog” remark, the stone-walling of counter-charges on the Sikh Riots of 1984.

There was also the drama and mockery about Modi being chosen as the BJP’s PM candidate, the supposed rift between the Modi camp and that of Advani, the constant playing up of bizarre fringe elements.

Then there were the purported “fake encounters”, vicious charges of crony-capitalism, name-calling-Fascist, Hitler, Feku, aspersions on Modi’s class and character, links with venal Godmen, Snoopgate, the BJP’s alleged majoritarianism, Modi’s marriage; and daily, offensive and intemperate talking-heads given free reign.

All this, relentlessly, in order to spread rank prejudice against the BJP in general, and Modi/Amit Shah in particular. It hoped, no, expected, to thwart Modi’s rise to power.

Today, all these people in the Congress-loving Media are deeply embarrassed at the extent of their failure to influence. But they are full of resentment still, and try to justify their toxic hate-mongering in the name of “press freedom”.

Modi, on his part, surely cannot be expected to forget the unfair treatment for over a decade when he was Gujarat CM, and right up to date.  Fortunately, the people, to whom Modi spoke so eloquently, over the heads of this prejudiced media, have been most generous.  

But the majority media slant remains both pernicious and persistent. The recent Israel –Gaza conflict ongoing, or the Shia-Sunni battling in Iraq is sought to be cast in “communal” hues, presumably  to polarise minority sentiment in this country.

But the NDA Government to its clear credit, is largely incommunicado on this, unwilling to fan the flames of such negative passions, and loathe to take sides.

Meanwhile, it is the economy, gaining traction and recovering its mojo, that will do the real talking and burnish the Government’s image. The NDA Government, in harness for about two months, is fortunate to see the green-shoots of a recovery on all fronts already. So much so, that the stock market is getting ready to forge ahead much higher than the 22% it has already risen in 2014.

Meanwhile, the foreigners are also keen to get in on the lucrative FDI projects on offer. These range from those in the Indian Railways, development and modernisation of its infrastructure and the bullet trains, to the Defence Production Sector, catalysed by the placement of 56 aircraft to replace the Avro transports in the private/FDI domain already.

Then there are the higher caps in Insurance, lower entry bars in construction and infrastructure, raised limits for the Debt Securities Market, mining, power, alternate energy, nuclear energy, roads and ports.

There is a rethink going on about multi-brand retail, and a clearing of the 30% local input barrier for single brand. There is China led SEZs revival, manufacturing incentivisation across the board via Japan, South Korea and others. 

In Modi’s 17 point vision and those budgets, there are many other goodies-  huge container ports, many more metro rail projects, country-wide telecommunications at the price of a local call, fast travel, going from anywhere to anywhere in the country in 24 hours etc.

So what else is there to talk about?

 (1,106 words)

July 22^nd, 2014

Gautam Mukherjee

Fortune Favours

Fortune Favours

It was Napoleon Bonaparte who first put in an Income Tax. It was also Napoleon who valued luck in a general on par with competence. The most hard-working Narendra Modi probably does not depend on luck, but if the Gods decree he must have some, he can hardly refuse to benefit from it. And the Chinese, as ancient in civilisation as the Indians, don’t think luck is luck unless it is financial.

The Modi Government’s first 60 days in office has already seen the appearance of green-shoots across the board, representing a turn-around in the economy. The acid tests down the road will be to transform food distribution to kick out the scourge of high prices. And to generate millions of new jobs for our young population.

Some of the work towards the latter has indeed been done, but the results are showing up only now. The all-important market-sentiment, that aura of optimism, has also revived considerably. This is evident in the buoyant stock market, the high indices, the over $20 billion inflow from FIIs, the revival of the high profit small and midcap space and the return of the retail investor. FDI too is the highest it’s been in 8 months at $3.6 billion in May 2014. Direct investment being anchored, tends to only come in with a rise in business confidence and faith in future governance.

Business and Industry is also speaking of growth afresh after much rationalisation and cost-cutting to survive.  But the first quarter results for April-June 2014 will show a 20% growth in profit year-on-year after tax (PAT), in the Sensex set of 30 leading companies. This is the best in nine consecutive quarters! The 50 company Nifty, will also post a  fair to good 20.9% year-on-year in gross earnings; that is before deducting taxes, interest, depreciation and amortisation (ebitda).

The IIP  Industrial production numbers at 4.7% for May 2014, are the best in 19 months. Exports are growing at over 10%. Inflation, including retail inflation, is edging lower, but permanent structural solutions have to be found for food - beyond cracking down on hoarders, leaning on middle-men, possibly banning onion exports etc.

Imports of trade goods and manufacturing inputs are up some 8.3%. So are oil imports, along with the great Indian hedge of gold, up 65% now that restrictions have been lifted. Foreign exchange reserves are growing. The rupee is stable. The monsoon is reviving and the threat of rain deficits and drought is receding. Oil prices are coming down as the Iraq situation stabilises. Diesel subsidies are almost wiped out because of a $10 fall in crude prices, and should be eliminated by November. Stuck projects, particularly in the road-building sector, are being resurrected.  Civil Construction is perking up, with budget incentives, and regulatory easing moves from the RBI.

Nomura of Japan thinks the economy could grow at 7% and real investments grow at 10% if Modi’s policy announcements are implemented.

But, there are problems too.  Bibek Debroy does not think there will be a 20% growth in tax collection without the ‘tax terrorism’ that the Government has promised to do without. But will even that work?

If revenue targets are to be met and bettered, the country needs deep systemic changes. These are badly required if Modi’s NDA is not to be just a more efficient, less corrupt version of UPA. It will certainly be underwhelming to fix what is broken and tune up the rest. This first term of the first majority Government in 30 years could go the Rajiv Gandhi way if that is all that happens.

The transformation of India in very many, if not in every way, need not be completed in these five years till 2019. But there needs to be a robust beginning, that gains considerable traction soon. Narendra Modi knows this, and hence his sense of urgency.

Amongst the many priorities this Government has already highlighted, tax policy and administration, the centre-piece of our budgets, albeit along with inadequate allocations for lack of sufficient Government revenue, needs thorough overhaul. It is now antiquated, inefficient, corrupt, unwieldy, and far from cost-effective.

The ideas that came during the BJP election campaign need a good hard look afresh. Do we need a universal expenditure tax after all? Right now the projections and collections have little hope of tallying. Even without large masses of the poor outside the banking universe, the eighty twenty principle certainly applies, and an expenditure tax could bring in much more than the present amounts from all tax sources.

Income Tax both corporate and individual, takes more money to collect than what it yields. There are also lakhs of crores in demands disputed and under litigation, and no amount of stream-lining the back-log can help the front end deluge that keeps coming.

The whole rigmarole is an inheritance from the British who were the second, after Napoleon to adopt Income Tax. But  it does not yield enough revenue for the Government.. Today in India, Income Tax is paid in full only by the captive middle-class salary earner in the organised and semi-organised sectors, with nowhere to run, nowhere to hide.

Every kind of independent operator, service provider, consultant, has more elbow room, with expenses and so forth to deduct and balance sheets to prepare. Small and big business too manages to navigate through the thicket of vague laws, precedents, exemptions, incentives, and Chartered Accountant spawned interpretations. Big business pays an effective maximum rate of just 23%! 

Besides, we simply need more tax payers. This cannot really happen without creating many more jobs. The need is for a 100 million new jobs. And this, at a time, when IT now manages to create $ 1 billion in new revenue from just an additional 13,000 people using better technology. The same thing applies to manufacturing and all other sectors as well.

The task therefore is not to retard progress with the same kind of labour intensiveness that has paralysed our bureaucracy with over-staffing, but to go in for quantum growth in every field to create a sum aggregate that meets our employment objectives.

Will some of it come from the new BRICS , APEC and Shanghai Group initiatives? It no doubt will.  There will be many other opportunities, emanating from other countries, and we must make our  transformative fortune through seizing them.

(1,055 words)

July 17^th, 2014

Gautam Mukherjee

BOOK REVIEW-Can Good Economics Become Good Politics?

BOOK REVIEW

Title:                     Politics Trumps Economics-the interface of economics and politics in contemporary India.

Editors:                Bimal Jalan & Pulapre Balakrishnan.

Publisher:           Rainlight, Rupa Publications Pvt. Ltd., 2014.

Price:                    Rs.500/-

Can Good Economics Become Good Politics?

The central thesis of this book of essays by a number of eminent economic thinkers is that politics in India generally trumps economics, much to the latter’s detriment. Essay after illuminating essay of the dozen in the book make commendable suggestions, with the underlying assumption that they are doing their bit far removed from political compulsions. It is a kind of academic high horse but a fountain of cogent, well-researched ideas nevertheless.

For long years, most Indian regimes believed that economics must, as a matter of ‘progressive’ ideology, be subordinated to the politics of raising up the illiterate and hungry poor, who cannot understand economics anyway. This is a standard Socialist position, but one that has delivered less than salubrious results by stoutly ignoring market economic principles of demand and supply over ideology.

Today, it could be argued that good economics can also be good politics. Incumbent State Governments being voted in for multiple terms may well be a case in point. But much needs to change. Many of the essays in this book seem to take for granted that the public sector units and the infrastructure provided by the Government cannot ever be efficient, or even sufficient. A surrender and abdication of governance is treated as a given. But again, some well-run State Governments have disproved this upsetting and cynical assumption.

Accountability however, remains a major lacuna. The blurb on the back of this book says ‘It is mainly that, over time, India’s administrative system has become largely non-functional and unresponsive to the interests of the average citizen’. And yet, clearly, suggesting privatisation cannot be a general panacea.

P Chidambaram, then Finance Minister, gave a speech in Singapore in 2008, quoted here by Pulapre Balakrishnan: ‘ India must touch a 10 per cent growth and sustain it for 10, 20 and 30 years to make poverty part of Indian history.’ It is another matter altogether that the UPA never did touch 10% growth in GDP, and went into a steep decline in UPA 2 instead. Still, the fact remains, as makers of policy, the Government controls the game, and only has itself to blame for non-performance.

Mr. Jalan, a former RBI Governor, writes: ‘The main objective of the essays in this book is to highlight the importance of adapting economic policies to the evolving situation in terms of what the economy needs at any point in time rather than adopting differential policies dictated by different ministries, depending on the wishes and special interests of individual ministers representing multiple small parties in a coalition government’. Mr. Jalan’s plea for coherence, and the common weal, is perhaps echoed by  Prime Minister Narendra Modi’s effort to group several related ministries to prevent turf wars, wastage, duplication, and working at cross purposes.

But yes, to a large extent, this book, published as recently as  February 2014, has been overtaken by events. We now have the first majority government at the centre in 30 years. Another essay, by Poonam Gupta, a World Bank Economist, lists BSP, RJD, CPI and CPM as National Parties. They are all now decimated, and unlikely to revive. The oldest of the bunch, Congress, is also on a sticky wicket.

The Editors emphasise productivity. They write, ‘We have reason to believe…higher growth rates have been secured from levels of domestic investment lower than what it is currently’. The Modi Government is well aware of this, and has mooted an Expenditure Monitoring Commission for the first time. It is even tweaking the massive welfare programmes inherited from the UPA for greater efficacy.

Former JNU Professor Dipankar Gupta, makes the point that the ‘cleavage’, between rural and urban India is blurring. ‘There has been a tremendous increase in Rural Non-Farm Employment (RNFE)’, he writes, ‘what was once a secondary occupation for most villagers is often a primary one today’.

The RNFE sector contributes 45.5% of rural net domestic product today. Gupta also states, ‘There has been a steady rise in the migration of male workers from rural to urban India. In less than 10 years,  … the number went up from 36.5 to 41.6 per cent. In just one year, between 1999 and 2000, the proportion of people migrating for jobs jumped by as much as 15 %’.  He concludes presciently: ‘the unities between citizens will be much greater than what has been in the past’. Lord Meghnad Desai calls for ‘Social equity’, elaborating on this same theme.

Is it little wonder then why Narendra Modi swept the polls in a young, aspirational India, hungry for development and jobs?  The nature of the political beast may indeed have changed for all time to come. It is a perform or perish form of economy led politics now, and this volume of ‘think pieces’ written for an if-only world, could well serve as a source of inspiration and good ideas.

(806 words)

July 13^th, 2014

Gautam Mukherjee

Fine-Tuning The Beast

Fine-Tuning The Beast

How is it looking a few days after the budget presentations? There is a lot of the fine print to sort through and many clarifications to seek but most people think it was a good set.

The Opposition is miffed because it has little besides the Rs. 200 crore allocation to the statue of Sardar Patel to complain about. But yes, not every provision can possibly be met with unmitigated joy by all concerned.  Many commentators are blaming the first Jaitley Budget for not dumping the welfare-priming ways of the UPA. But surely that criticism can be overlooked for being a double-edged sword, with the Congress and the Left just waiting to call this Government ‘anti-poor’.

The Modi Government has shrewdly deprived the Opposition of the opportunity, and besides there are several forthcoming Assembly polls to consider. Maharashtra is going to be challenging, despite the Congress/NCP misrule, with Gopinath Munde gone; but Amit Shah as BJP President now, is likely to pull other rabbits out of his organisational magician’s hat.

Besides the pro-poor stance in the budget is real and sincere. Modi comes from a poor family himself, and there is a genuine commitment. Universal housing by 2022 and indoor toilets for all are just two easily identifiable aspects of this. That the Jaitley budget addresses the concerns of very many other, if not all sections of the populace, is not meant to take anything away.

And then some of what has happened is fortuitous. The first national industrial production output (IIP) numbers in 19 months show a healthy uptick at 4.7% for May 2014, up from minus 2.5%  in May 2013.

This needs to ramp up further to nearer 10% month after month, along with GDP figures to match. This would put the roar back into manufacturing, and consequently, the job market. This particularly, since the highest the IIP numbers so far were in October 2012 when they reached 8.4%.  But for now, it is good to know that confidence is returning to manufacturing, however hesitantly. This May figure has come on the back of a revival in mining and automobile manufacture. It is also a percentage achieved on a low base, but still, the first two months of this fiscal, namely April and May show a growth of 4% in IIP as opposed to a minus figure of 0.5% for the corresponding period last year. GDP likewise is projected to grow to 8% by 2017, up from just under 6% this fiscal.

The Construction sector too, capable of being a major money-spinner, is feeling good, with the introduction of REITs and lower FDI thresholds for both land-banks and initial qualifying investment. This is expected to bring in about $10 billion from abroad to start with.

The allocations in the budget towards affordable housing, the seeking of innovative help in this area from Singapore, where the Government houses 82% of the miniscule 5.7 million population, is encouraging. Singapore has placed its residents in its own version of low-rent ‘Council Housing’, or long-lease (99 years) ownership, for those who can afford to buy.

The allocation of over Rs. 37,000 crores for getting the road-building started again is also welcome.

But one budget proposal in the financial sector that seems retrograde is the doubling of Capital Gains Tax on Debt Mutual Funds from 10% to 20%, and the extension of qualification of sale or transfer as a ‘long-term’ gain, from the existing 12 months to 36 months, just as in the case of  the   much bigger-ticket property sector.

The bureaucrat who proposed this probably forgot about indexing for inflation, allowed to all capital gains computing, which will reduce the notional 20% to a minus in 36 months, and make the whole thing yield negligible amounts in tax. Also, the restrictive lock-in will drive away corporate and FII investors with large funds. And quixotically, it does not apply to investments in Debt instruments individually. This ill-advised proposal will retard the growth of Debt Mutual Funds at a time when the Government needs to attract more investments into the Debt Market via all available and new avenues. And it is applicable, the Finance Ministry clarified, from April 1, 2014 making it retrospective! Hopefully, this feature will be dropped during the review of budget proposals.

Elsewhere, people are busy doing the maths. The increase of the FDI limit in Insurance is expected to bring in about $20 billion.

But the really big ticket money, in hundreds of billions or more, will come in via FDI in Defence. The lack of majority ownership by the FIPB route, will probably have most serious high technology investors come knocking for Cabinet approval on a case-to-case basis at 100%.

Defence production has enormous potential in both money and jobs, when one considers that tiny Israel supplies 10% of the world’s defence equipment, and China, once the world’s biggest arms importer, just like India today with its $300 billion arms import bill, is now the fifth biggest exporter.

We need to be careful however to stop the status quoists in their lobbyist tracks, if this great opportunity is to succeed. It is interesting after all, to note reports that certain foreign-funded NGOs don’t even want us to be food-sufficient.

(871 words)

July 13^th, 2014

Gautam Mukherjee

The Big-Bang Budget As Implosion

The Big-Bang Budget As Implosion

This is a big-bang budget alright, but disguised in raiment of modesty and detail, directional rather than detailed in its expenditure proposals, instead of the bombast the Opposition may have expected.

The implosion here is buried deep, quite like our secret nuclear bomb-testing at Pokhran in NDA 1, which certainly changed our security status for all time.

Then, since it was on May 1^st, barely a month into Prime Minister Vajpayee’s term, on Buddha Jayanti, the code for the successful nuclear tests was ‘Buddha is smiling’.

Now, in the age of more advanced internet and instant, interactive reactions, there were a lot of positive feedback from industry, business, trade-bodies, small business, the poor and the man on the street alike. And many smiling emoticons on the social media to guide the editorial writers on the reception given to this first full budget from the Modi Government. The middle-class, of course, was well pleased with the small Income Tax reliefs given to them.

Most naysayers are from the Opposition, or those who support it, more or less doing their duty by complaining about every aspect of the Finance Minister’s presentation. In fact, Arun Jaitley and his team performed a difficult balancing act between promoting growth and serving fiscal prudence, barely 45 days into the life of the new Government.

The minister made a lot of small allocations to a large amount of headings, as if to acknowledge the claims and importance of various aspects of the economy, but clearly also indicating that it is a work in progress. The Economic Survey of the 9^th of July expected the economy to grow to 5.9% from its present 4.5% this fiscal, but on to 8% by 2017. Mr. Jaitley will therefore have much more money to allocate in successive budgets to come.

But for now, the concerns addressed, however symbolically, were many. These include poverty alleviation, high on the list, agriculture,  education, health, defence, one rank one pension, urban and rural infrastructure, metro-rail  services, roads, ports, airports, monuments, statues, memorials, ghats, electricity, water, tourism, Ganga cleaning, manufacturing, subsidy reduction and better targeting, the middle-class, employment, less excise on manufacturing inputs, bank reform, e-commerce and e-visas, expensive cigarettes, etc.

Arun Jaitley even underlined the intended Government efficiency in the form of a Expenditure Management Commission for the first time.  Overall, the Modi Government has made a solid effort in this budget to counter the canard of a  charge that it is merely pro-rich. There were just too many proposals to benefit all sections of the population and the country as a whole.

Amongst the new initiatives, many of the UPA’s welfare programmes have been retained, albeit for fine-tuning, to deliver better results. And everything in the long set of budget proposals is meant to convey the Government’s development-friendly direction and comprehensive approach - which in turn underlines its ambition and reformist commitment.

This messaging, as it is absorbed, will be most likely to attract private and foreign investment, because the perception is that this majority Government, with a strong party apparatus backing it, can deliver good governance and implementation of its commitments, both quickly and on time. Modi himself has a stellar development track record from his time as Chief Minister of Gujarat.

And that, given its paucity of funds to realise its objectives, this Government will be willing, even eager, to remove irritants and impediments, and meet investors’ concerns half-way for a change. This, more so, because it has inherited a worrying fiscal deficit figure of 4.1%, which it proposes to  pare down to 3.8% next year, and 3% by 2017.

And also, because this budget bears the stamp, in its fiscal caution, of a good deal of bureaucratic input, that this Government has been able to harness in a short time.

The key-drivers for the Modi Government’s intended success however, for much of what it outlined today, as in the Rail Budget that preceded it,  is a large dose of both public-private partnership (PPP), and foreign direct investment (FDI). The quantum of this money that it must attract runs into trillions of dollars, not something that has happened in India so far. But Modi is seen both as a doer and a man in-charge and India can be revisited as a great and profitable opportunity by the international community.

There are already favourable indications that a number of countries are keen, including Japan and China in particular. France and Britain have offered billion dollar long-term loans. Russia too was amongst the first to come calling.  And as Prime Minister Narendra Modi gets out and about, to the BRICS Summit very soon, to Japan, when he receives President Xi in India, and when he goes to the US, all in 2014, more offers are likely to come.

To pump up FDI in one area that currently accounts for 17% of the economy but has been languishing with massive debts, though responsible also for a good deal of employment, Real Estate Investment Trusts (REIT) have been introduced. And the foreign investment threshold in it has been lowered to suit.

Another significant move is the virtual discontinuance of retrospective taxation, Indian fashion, sending it to a cold storage limbo, even as it is a threat to domestic business, and a great irritant to foreign investment. But this, without falling afoul of its provisions in the letter of the law, by openly revoking it.

Likewise, the uniform General Sales Tax (GST), likely to see much better compliance than the present thicket of state and central taxes, is slated to come into force within a year, by which time the digital backbone required to administer it should also be up. Also, the NDA, reinforced with a gifted organisation man as its new Party President as of yesterday, is likely to have won Assembly elections in several more states by then to add its tally. This will also increase its legislative leg-room in the Rajya Sabha. And the GST implemented, will please Indian business and industry.

The Stock market was volatile throughout the day, but investors seemed to like the budget well enough. It was at 121 points up on the Sensex when the Finance Minister began to speak at 11 a.m. It dropped to 300 points minus after an hour, came back up to 300, then 400 points plus, starting in the second hour of Jaitley’s two-and-a-half-hour speech, and ended the day with a small, 72 point decline.  

The bourses, headed towards 30,000 or more on the Sensex from its present 25,500 odd, will play its part soon enough, as more than a 100 companies raise money, over Rs. 1.5 lakh crores, from the ongoing bull-run. This, and even as the Government unveils its own Rs. 80,000 crore divestment of PSU stock, from as many as 38 of its companies.  But in the end, will it do so by dilution or outright privatisation? After all, this administration does stand for more governance and less government, though we have to wait to see if this means fewer PSUs as well.

 (1,172 words)

July 10^th, 2014

Gautam Mukherjee

Leveraging The Performance Of The Indian Railways...

Leveraging The Performance Of The Indian Railways To Serve Progress

The maiden budget tabled this 8^th of July by a smiling but most earnest Railway Minister Sadanand Gowda, the first BJP minister to do so ever, was a dramatic, comprehensive and visionary curtain-raiser of the Modi Government’s policies.

Most NDA voters, constituting over half the electorate in several of the Union’s 29 states, with a decisive national average of 31%, were probably much relieved. This BJP/NDA voter needs to be contrasted with the decimated Congress’  sad 19.3% statistic, despite their continued efforts to project themselves as principal representatives of the poor.

The BJP voter quickly realised that they have not been let-down by the new Government in its first major statement of policy. There is to be no dilution, diminishment of pace, or damp-squib disappointment with rhetorical campaign pledges. Modi had promised a bold, transformative and pioneering approach to modernisation, development and governance on the stump, and here, indeed, was proof of intent.

Populism, it is seen, has been redefined into a better product. The Railways will be cleaner, the food better, more secure for women and from Maoist bandits, there will be internet connectivity and a cornucopia of amenities and choices at the stations, actually these will be upgraded beyond recognition, solar power will be extensively introduced, all railway land will be properly mapped digitally, modern state of the art coaches will be introduced, and so on.

On the fiscal side, the Railways will go some way towards paying its own way operationally, with tariffs linked to fuel prices in future.  Massive PPP and FDI investment will be invited for the ambitious modernisation plans, including the first stages of the Diamond Quadrilateral and the freight corridors. The Indian Railways will retire debt and borrow less, while improving governance to cut away masses of wasteful practices.

The particulars of this budget are new in almost every paragraph, its emphasis on completing projects, creating tourist and pilgrim routes, the closure of thousands of unmanned crossings that lead to accidents, airline-style vacuum toilets, faster trains on existing tracks, a general emphasis on  operational   efficiency  and getting more out of the massive asset base, electronic surveillance, easier online ticketing etc. indicate a comprehensive approach, as opposed to what the Prime Minister called ‘ad hoc’.

And overall, this giant undertaking run by the Government, its Ministry, its Railway Board, its lakhs of employees, is going to be spliced with a lot of corporate DNA for the first time. The Indian Railways, the biggest public sector enterprise, mired and wallowing thus far in third-world squalor, dying on its feet in the name of social obligation, is to be recast into its rejuvenated, productive and profitable avatar.  

The investors in the stock market, both domestic and foreign, clear about the route map now, decided to cash-in some profit from all the sectors and counters which have run up very fast of late,  no doubt before the market indices start climbing again. The Sensex fell 517 points after weeks, but not because investors were disappointed with the Railway Budget. This, even as all the companies associated with manufacturing items or providing services to the Indian Railways expressed their happiness and satisfaction with the budget proposals.

 The main budget, coming on the 10^th, will undoubtedly also be of a piece. And as if to indicate as much, there were two reformist and far-seeing off-budget announcements on the 8^th as well. One was with regard to a firming up of 49% FDI, to be allowed in Defence-oriented manufacturing in India, permissible by the FIPB route; and more, up to a full 100%, by sanction of the Cabinet on a case to case basis.  The other was a bold liberalisation in the repayment terms of Infrastructure loans, from a difficult 10 year maximum, to a more realistic and attractive ‘life-cycle’ period of 25 years. 

These initiatives have been taken, as if to bracket, enable and accompany the path-breaking Railway Budget. Most commentators are gob-smacked by the reach and ambition of this budget, and are asking if it can be implemented in equal measure. Expert opinion however, sees no reason why not, given Narendra Modi’s gift for good governance. Conversely, the Opposition Congress were thrown into a paroxysm of despair at such an awe-inspiring opening gambit, a railway budget like none other in the 67 years of  independent India’s history.

The Prime Minister himself was quick to make a statement to the people on DD, immediately after Gowda’s presentation. He said, in effect, that the policy framework had to be reworked to bring out the potential of the Indian Railways as a key hand-maiden to the country’s economic development.

Indeed, it is now clear that this Government is the worthy successor to take forward the bold reforms initiated in 1991, but sadly never really built upon since. Then, the GDP was just 1.1 % and there was a paltry $5.8 billion in foreign exchange reserves. So reform in 1991 came about as an imperative to the country’s very economic survival, after decades of unproductive socialism.  

And today, again, some elements in the fractured Opposition, are raising various  populism- inspired bogeys against the proposed FDI and private-public partnership model, mooted to finance the expansion and modernisation. But now, it is good to remember that the USSR, the much emulated socialist mentor of our early years, also disintegrated and vanished, as it happens, in 1991.

(892 words)

July 8^th, 2014

Gautam Mukherjee

A Script For The Future

A Script For The Future

Prime Minister Narendra Modi outlined a vision of  massive rejuvenation and private sector participation in the Indian Railways at his 4^th of July speech at Katra Station. Other reports are making it clear that 100% FDI will be allowed in many areas.

These include freight movement, Japan/China style high-speed trains, coach, track, and signaling equipment manufacture, station revamping,  and  public-private collaboration in operations, of passenger services, both urban and long-haul. Alternate sources of energy such as solar power will also feature prominently.

Modi said that infrastructure development always brings prosperity and entrepreneurship in its wake, particularly when a railway line reaches out further. What a departure this is from the profligate populism and clerical tinkering that has been the approach in the past.  

It is certainly a ‘script for the future’, a phrase used by veteran journalist Prabhu Chawla in another context, to herald the beginning of the turbulent coalition era. Those were long, unfulfilled years, that many thought were here to stay, until they ended abruptly with Modi’s spectacular electoral win. This script for the future is now being written by a strong Government, out to transform the country in short order.

Though it is early days, the Government has made an energetic start. Every initiative is harmonised to boost essentials like the economy, health, education, jobs, national security, reform in the APMC and food distribution, a fresh result-oriented approach to foreign affairs, initiatives on national security, bringing crooks to book and showing others the door etc.. Even our workers in the conflict zones of Iraq are being quietly and rapidly repatriated, using very effective diplomacy without sensationalism.

Alongside, there are unprecedented and determined steps to combat hoarding and food inflation in a down-to-earth fashion. It is hoarding and profiteering rather than food shortages that have been cited for the rise in essential food prices, including those of vegetables, onions, potatoes, grain and cereal. So this Government is opening up the granaries and catching the wrong doers.

Governance is being emphasised, most refreshingly, over politics as usual, much to the frustration of the Opposition.We can expect many improvements to set the country firmly back on the growth path.

The stock markets, convinced this dispensation means business, are poised to power on towards 30,000 on the Sensex from 26,000 levels it has already scaled. The development agenda is convincing to the FII community, and they have poured in over $ 20 billion in recent months.

The Modi Government’s approach is completely different. It wants not just to revive the Indian Railways, a major national asset, from the brink of ruin, but to use it to leverage growth, national security, connectivity, investment, jobs and modernisation.

It is acutely aware than only 5 million new manufacturing jobs have been created between 2004 and 2012, when the need is for 100 million jobs,  at the rate of 12 million every single year.  Modern, expanded and efficient Rail connectivity, from the million people employed by the Railways, amongst a host of other initiatives, will do its bit to attract new industry. But labour-intensive manufacturing, the main job generator, is in bad shape today, and accounts for just 15 to 17% of GDP, with most of its output consumed domestically. This needs to grow exponentially and fast.

By way of contrast, it should be noted that China, much admired by  this Prime Minister, delivers 45% of its $ 6 trillion plus GDP, from manufacturing alone. And it earns trillions of export dollars in surplus as manufacturers to the world.

For India to attract the billions and trillions in FDI, for the domestic market and export, that is essential to implementing the Modi Government’s development agenda, it must be seen to be coping with its fiscal deficit, and demonstrate the formulation and rapid implementation of a high-growth policy. This will mean, at the same time, a doing away with the bulk of our subsidies and the unfocussed welfarism, and the road- map has to become visible in the imminent budgets.

The FDI is fortunately, eager to come. It will boost and energise all the capital intensive sectors starved for funds. These include core infrastructure, obsolete and inadequate, defence manufacturing, oil and gas finds, the railways, heavy engineering, re-engineering etc.  

But this can happen only if the laws, regulations and processes are completely overhauled and made investor-friendly. Prime Minister Narendra Modi is aware of all this, having implemented many reforms in Gujarat to attract FDI, and will be seen, in the coming days, to be doing likewise for the nation as a whole.

Indian public opinion must accept that it needs to compete for investment with other emerging and developing economies. 

The old ways of attempting to control and dictate to foreign investors will have to be thrown out. We will have to be transparent and stable in our policies and vastly improve the functioning of our legal system.        

The all-round revival of the Indian Railways on the cards should be seen as a harbinger of the general and comprehensive approach of this Government. Relatively untapped potential and green-field initiatives, via the development of the Himalayan Region for example, slated to get itself a separate ministry soon, will extend the Indian Railways to the borders of Arunachal Pradesh.

This will consolidate the security of the whole region, supported by the raising of new, well-equipped mountain battalions of the Indian Army. These will be raised from local populations, born-and-bred to altitudes and familiar with the terrain. And the railway will bring new business and industry down the line. Narendra Modi, it is clear, is keen to emulate China in more ways than one.

 (935 words)

July 5^th, 2014

Gautam Mukherjee