From A Jack To A King

 

 From  A Jack To A King

Can India become a regional or even a global super power? This question is being discussed afresh after the advent of the Modi  Government and the hope it has  rekindled.  The American intelligence community think it has the potential to do so economically, if not in other ways. Others, like noted historian Ramachandra Guha don’t think it is possible any time soon. His reasons are sociological and political in the main.

Guha cites India’s  enormous diversity, of population and customs, its stubborn and still persistent caste hierarchy, its multiple religions, etc. There are also the challenges of left wing insurrection, terrorism, inadequate education and health facilities, and a universally poor implementation record to contend with.

Some thought leaders such as Harvard educated Ram Charan nevertheless predict that India will emerge as a regional power with a footprint of influence ranging over the SAARC region and parts of West Asia. It is after all already Asia’s third biggest economy. It could arguably take up the slack from a retreating America. It could even counter- balance China if it forges alliances with several South East Asian countries. 

But the Indian reality is that we have not been much good at exploiting our own potential, let alone projecting anything other than an ephemeral soft-power in the world. And this includes our immediate neighbourhood. Our ability to emulate, let alone counter China, depends firstly on vastly improving the condition of our finances and reserves.

We have to effect great reforms and structural changes to move forward quickly and make up for lost time. The Indian legal system is perhaps illustrative of the problem. It is all laws and no justice, largely because of interminable delay.  Similarly, our infrastructure, always a work in progress, is never ahead of the demand curve, and is a serious drag on our credibility. Our bureaucracy  is renowned for its spectacular inertia. Our military is grossly under- equipped.  The economy is only just being revived, is really not very big in the super league tables, is burdened with massive fiscal deficits, and has a long road to travel.

Our greatest, apparently  temperamental  shortcoming, from the investor  confidence perspective, is an inability to remove multiple bottle-necks that constrict and contort both demand and supply engines. In addition we are very slow at execution resulting in huge cost overruns.

 Yet, leading emerging market analysts admit that the category with its relatively high growth rates compared to the developed countries, should ideally attract 50% of the world’s $ 6 trillion in investment capital annually. But there is a deep prejudice against this, and a herd mentality preference to concentrate most investment in the developed world. This is because of a faith in its institutional framework, its stability, military prowess, and the effective rule of law in the advanced nations.

In contrast, because of this confidence deficit, emerging markets including all of BRICS, receive no more than 15% of the investible capital. There is talk of the Modi Government attracting some $50 billion in FII by 2015, almost double the previous annual high of $29 billion. This, if it happens, will certainly mark a breakthrough. FDI too, already on the upswing, is slated to reach all-time highs soon. September, with its slew of high-powered  bilateral meetings scheduled, is expected to provide the eagerly anticipated large investments needed to  turbo-charge the Indian economy.

What are we doing to make ready?  First, a move to help over 300 million of our poorest.  The new ‘bank account for all’ initiative is the beginning of the end of ‘economic untouchability’.  This comes complete with a Rs.5,000/- overdraft limit, rupees one lakh worth of  accident insurance, life insurance worth Rs. 30,000/-, and  will serve as the direct conduit of other welfare measures to cut out the middle-man corruption.

Then,  a mega investment and employment opportunity in the defence production space. India has allowed domestic Industry and its foreign collaborators to develop and build 400 light helicopters indigenously.  It comes on top of another recent sanction to build cargo aircraft here as well. These  initiatives are only the outliers of India’s massive ambition to reduce its dependence on  imports as the biggest arms purchaser in the world.

Meanwhile, the strategy of taking a large number of small steps and the continuous efforts to tone up the administration have borne fruit. The RBI has just announced a 5.7% growth in GDP for the  April to June quarter, up from 4.6% in the previous one, and almost as high as the 6% figure, last seen  two and a half years ago.

Still, there is much to revamp and reform if the ‘transformation’ is to come about. Fortunately, there is a feeling in the air that if anyone can get this country moving, it is indeed Prime Minister Narendra Modi.

(797 words)

August 30^th, 2014

Gautam Mukherjee

Good News Week

 Good News Week

 Good news for India which imports an ever growing absolute of 80% of its crude oil, is that Brent Crude has come down to a 13 month low.

If this trend keeps up, it will have a beneficial knock-on effect on inflation due to lower petrol, diesel and other fuel prices at the retail pumps too,  in addition to making it easy to take off all remaining subsidies on fuel. This is coming in place of the fear that the war with ISIS and ISIL in Iraq, was going to push up petroleum prices.  

But luckily, the bulk of Iraqi oil, pipelines, and its export mechanism/ports, are all in the south of the country, which never came under threat. Also, the global oil prices never did go up to incorporate a ‘war premium’. But all in all it proved to be a silver lining for India and China, two huge consumers of world oil. 

Cairn India has incidentally just announced very promising onshore gas finds in Rajasthan which when developed will contribute its mite towards India’s energy security.

Governor Rajan at the RBI, working on reorganising the central bank to make it more nimble and useful , is  already buoyed by the fact that the monsoons have turned out quite well, if a little uneven in its favours .

This will, in itself, lead to lower food prices, meaning primarily vegetables, as the cereals and grain have enjoyed a bumper crop from last year. However, because of primitive handling and warehousing, there is always  a lot of spoilage and wastage in the midst of poor people going hungry.

But with lower fuel prices expected to persist, the cost of transportation of foodstuffs and other goods to market will also work lower. Rahuram Rajan may indeed be able to start cutting interest rates soon, thereby enthusing business and industry and improving the investment climate.

The stock market meanwhile, is on a roll. It has received $ 12 billion in FII investment already this year, taking the Nifty above 7800 and the Sensex upwards of 26,000. Much more is expected  in the second half, when the pace of investment from abroad generally accelerates.

In 2012, 65% of the $24 billion total came in the second half of the year, and in 2010 it was 84% of $29 billion that came, all in the latter part. In addition, domestic investors have now joined the rally, inclusive of the mutual funds focussed on equity, and all sectors of the market, ranging from the micro and small, to the medium and large stock indices, are now heading upwards, broadening the base of the bull-market and increasing its stability.  

A healthy stock market growth will assist the Government’s divestment programme of equity in a number of PSUs ,slated to raise anywhere between Rs. 60,000 and 80,000 crores. Private companies also have ambitious plans to raise money from the stock market, and this looks like a very good prospect going forward, particularly with the PSU banks groaning under their burden of NPAs.

However, there are some lurking external threats.  Governor Rajan, famous for having predicted the Wall Street collapse of 2008, three years before the event, is once again warning of an impending financial crisis in the US, brought on by excess liquidity sloshing around, paid for with trillions in borrowed money. This, even as the US has reached the end of its stimulus programme, and might even be looking at raising interest rates  in the future.  GDP growth rates however, in the US and Europe alike, are not encouraging as yet, and unlikely to pick up in an atmosphere of prolonged stagflation.

India, on revival path, towards 5.5% this fiscal, and more, up to 8% in GDP going into 2016 and 2017, is definitely going to remain attractive.  China is being closely watched for signs of distress after its blistering pace of double digit growth, now slowed to around 7% of GDP. But, it seems to be ostensibly coping fine at these levels.

Both India and China, housing half the population, and a good deal of the demand  in the world, will continue to grow faster than most other countries. Of course, the Chinese economy  is already several times larger than ours, and getting ready to rival that of the US. China also runs substantial and globally rare surpluses, but  India has a good chance of narrowing the gap over the coming years.

Of course, India’s early revival to near double digit growth now hinges on massive investment in infrastructure, a certain vehicle for over $ 1 trillion in investment. India is seeking investment from a number of countries including Japan, China and now Singapore, into this sector and others, and there are several other countries keen to  invest, particularly now that the tangle of red-tape is being cut. Some commentators think the Modi Government might have a tough time in motivating the bureaucracy, but Modi himself  is undaunted, having cracked this particular nut in Gujarat before.

At present, the domestic signs are all good, the best amongst both the EMs and BRICS, and sure to get better as the pace of reforms picks up. The Modi Government, with its absolute majority and a  business-friendly prime minister, inspires strong investor confidence. Other reports also forecast a revival in private equity (PE) interest in India.

The Government is also working on revamping the agricultural remuneration scenario to get away from the stranglehold and exploitation of middlemen. The contribution to GDP from the agricultural sector, now at  17%, is going to be enhanced dramatically. Rates of  agricultural growth  nationally, currently languishing at below 3%, need to be  better. Gujarat has turned in 10% agricultural sector growth year on year, and  this needs to be replicated nationally, if we are to banish poverty. 

A new National Common Market For Agricultural Produce with many Spot Markets is being created to take things forward from the present Agricultural Products Marketing Council (APMC) and the Food Corporation of India (FCI).  Combined with a new body tasked to push federalism and authority to the States, things are likely to be transformed.

This new  mechanism is expected to put bigger profits directly in the pockets of farmers, using strong  IT inputs for real-time information flows. It will also reduce huge inefficiencies from antiquated operational methods while creating afresh modern infrastructure for materials handling, warehousing, cold chains etc.   

The potential rewards of these second generation reforms, including those in defence production, insurance, construction, etc. under process, will positively impact the fortunes of  millions of the  urban and rural poor, and become the unbeatable electoral  game-changer going forward.

(1,102 words)

August 18^th, 2014
Gautam Mukherjee

Reform Snowballs

 

Reform Snowballs

Stung perhaps by a growing chorus of well-wishers and detractors alike complaining about the slow pace of Reforms, the Modi Sarkar has perceptibly quickened its  pace.

Fuel subsidies are being radically reworked to benefit only the bona-fide poor and not all and sundry. This approach is also going to be applied to many of the Welfare programmes it has inherited from the UPA. The Finance Minister has highlighted the undesirability of worrying about inflation alone at the expense of growth.  This is most welcome, because a level of tolerable inflation balanced against high-growth  is going to give the best results. A recent report says an investment of $1 trillion may be required to ramp up the Modi vision of urban renewal, infrastructure enhancement and a 100 new smart cities. This thrust alone, if put to implementation, will take the GDP back up to 7 to 8 per cent per annum.

The SEZs, a more or less failed idea so far, are being woken up from their slumber. And their allergy to impediments such as the applicable dividend distribution tax etc. which has put off investors, are on their way to being repealed. When sorted out, it will serve the cause of manufacturing, employment and boosting exports.

 Narendra Modi also keeps reiterating his promise to provide 24x7 electricity to every part of the country, and he said so once again at the inauguration of a  new transmission link, the Raichur-Solapur 765 kV second circuit line, in Maharashtra.

There is, of course, a tremendous amount to be done to upgrade and enhance the ageing and creaky generation, transmission and distribution apparatus, neglected and fallen behind demand by a vast margin. But even in his recent visits to Bhutan and Nepal, power generation was very much on Prime Minister Modi’s cooperative development agenda.

This makes it a commitment rather than pleasant political rhetoric, because repeated mentions of  universal electricity availability suggests that Modi and his Government  is willing to be held accountable for its promises made in this regard.

Likewise, at the launch of the indigenously built warship  INS Kolkata, Modi underlined his commitment, yet again, to much greater defence production within the country. That this also holds enormous invest potential alongside its spin-offs of strategic advantage,  state-of-the-art technology absorbtion, employment, and possible exports ,is  downright exciting.

An interesting and unfolding story is the exclusive use of state-owned DD for all of the prime minister’s public and broadcast communication. DD has, for the Independence Day speech from Red Fort, unveiled its new and enhanced digital broadcast capabilities for flawless and modern coverage. But lurking behind this patronage from the top, is the implied effort to convert the state-owned entity into a popular media powerhouse, with professionals, content, production values and profitability to rival any of the private and international satellite TV media organisations.

 The new BJP President Amit Shah has, on his part, swiftly overhauled his team, underlining his authority, dropping the less than dynamic . The new office bearers are mostly under 50 years of age, and chosen for their tested ability to deliver winning elections.

The BJP will also shortly build itself a fine and purpose-built party headquarters in the heart of New Delhi, giving over from its Lutyen’s Bungalow perch on Ashoka Road. This signals its vastly enhanced stature as a national political party of consequence, certainly for now, but equally so for the foreseeable future.

The Independence Day announcement of a Think Tank in place of the erstwhile centrist Planning Commission, tasked to push greater autonomy and authority to the States of the Indian Union is another bold change. It was followed, a day later, by Prime Minister Modi’s  desire to see the States taking a greater hand in promoting manufacturing and exports.

Of course, nor everyone thinks what the Modi Government has done in three months is too little, including Swiss brokerage UBS, content to see the Nifty at 8,000 by December 2014 and listing the Government’s announcements with regard to Insurance, Defence production, REITS, Labour Law reform etc.. But the vast majority fully expect an ambitious level of performance from this Government, taking its pro-business, pro-growth stance for granted.

 Narendra Modi  is going to Japan at the end of this month, and the visit is expected to yield substantial economic results in terms of nuclear power cooperation and manufacturing in the Delhi-Mumbai Industrial Corridor (DMIC). This while a Chinese delegation is on its way to India to kick-start two SEZs incorporating sizeable Chinese investment, currently at a paltry $1.1 billion, invested in Gujarat.

Meanwhile, India’s trade with China has grown to nearly $ 70 billion per annum, with a trade surplus of some $40 billion in China’s favour. China is well used to running such unequal trades with most countries, but is open to the idea of manufacturing in an India run by Narendra Modi.  India wants to make inroads into the Chinese market in IT and other areas, and this is likely to be agreed after President Xi’s forthcoming visit in September.

The Koreans are also keen to participate, as are the French, the Israelis, the Americans and others. Every nation worth its salt wants to trade with a country of 1.2 billion souls. But friend and foe of this Government, both want to see implementation to match Modi’s flamboyant promises.

 Narendra  Modi, the canny politician, is well aware of this, and is clearly confident of demonstrating his Government’s mettle in the weeks and months to come.

(911 words)

August 17^th, 2014
Gautam Mukherjee

Pradhan Sevak Exhorts The World To Make In India

 

 Pradhan Sevak Exhorts The World to Come Make In India

 It was invigorating to see a confident, disciplined and healthy Prime Minister Narendra Modi exuding positive body-language at the Red Fort on India’s 68^th Independence Day. After over two decades, we have a modern and energetic prime minister, from the generation born after independence, in the prime of life, adding credibility to his soaring vision.

Modi got out of his armoured BMW and strode down the red carpet to take a ceremonial salute from the three armed forces, climbed up the steps to the podium and platform with easy tread, and unfurled the national flag at Red Fort for the first time.  It looks like the lift to the ramparts, put in for his elderly predecessors, is unlikely to get much use from this prime minister.

Then the speech began, Modi’s voice ringing out to the capacity audience, from a podium pointedly unencumbered by bullet-proof glass, though Modi’s threat perception is intense. And he spoke for over an hour without benefit of a prepared speech. He spoke extempore, in soaring and passionate tones, the tail of his festive red and green pugree blowing in the wind. He referred to his points now and then, just as he did on the campaign trail, and laid out what was essentially an inspiring vision statement. The blogosphere, twitter/facebook universe and mobile phone space has been buzzing ever since, in delighted approval unprecedented for what had become a routine sarkari  ritual.

He spoke of many points of difference in his outlook, about e-governance, digital technology, spearheading progress with IT, of the evils of gender discrimination and rape, of conciliation, concrete and ameliorative efforts directed at the very poor, of cleanliness, toilets and tourism, model villages, punctuality, integrity, and the ideal of service to the nation, calling himself not Pradhan Mantri but Pradhan Sevak to underline the point.

Modi said many things that have never been said by any prime minister at an Independence Day speech before, and succeeded in communicating directly to the millions of his countrymen, and the international audience watching India.  To them all, Maoist and terrorist included, Modi asked for a shunning of violence. He wanted a moratorium for the ten years in his plan of things, on casteism and debilitating communalism. He called for a patriotic commitment to the nation from every citizen, his ‘sawa crore’ people, and managed not to make it sound as utopian as it probably is.

Modi spoke of preferring parliamentary consensus to the muscle of a brute majority, and of political reconciliation. This may explain the referring of the Insurance Bill increasing FDI to 49%, his Government’s first major economic reform initiative, to a Select Committee at the urging of Congress. It will be delayed to that extent, even as the world and its expected $ 20 billion of investment waits, though the Committee, headed by BJP Rajya Sabha MP and Senior Journalist Chandan Mitra, has been mandated to submit its report by the opening of the Winter Session. But Modi did this, quite tamely, rather than calling for a joint session of parliament because of its lack of sufficient numbers in the Rajya Sabha, to push it through earlier.  

Politically, he spoke about his intent to foster greater economic cooperation with all seven SAARC countries, pointedly including Pakistan in the message without any mention whatsoever of acrimony. This despite the Pakistani Prime Minister’s predictable reference to Kashmir on his Independence Day address of the 14^th.

Narendra Modi exhorted the world to turn India into a manufacturing hub, using it as a centre-piece of his speech, repeatedly asking it to ‘Make In India’, probably aiming the message towards Japan and China in particular, as he is to meet with the heads of both countries shortly. This implies that many steps, such as the tax incentives demanded by them, will be taken in the coming days. This will attract FDI and boost state-of-the-art manufacturing and the jobs it will engender, both for the domestic markets as well as exports.  

In a clear and final departure from Soviet Style central planning, Modi said the days of the Planning Commission were over. The organisation will be reincarnated as a superior think-tank. He also said that as an  ‘Outsider’ to the Delhi power structure who has obtained an ‘Insider’ view over the last couple of months, he was appalled to see that there appeared to be many governments in one, working at cross purposes, like medieval fiefdoms and personal jagirs, some even  at unashamed legal loggerheads in the courts against each other. Modi clearly implied that this will not be permitted henceforth, and that Government will be streamlined in order to turn out a desired level of performance.

Modi’s Government, away from the fortress podium, passed a constitutional amendment through both houses of parliament only on the 14^th ,ending the erstwhile collegium process of selecting judges grown less than merit-based. And the Law Minister declared that some 300 redundant laws will be repealed during the simultaneous Independence Day ceremony that took place at the Supreme Court, in an act of long overdue decluttering of the statute books.

Amendments to several outdated and obstructive Labour Laws, long hampering investment in manufacturing, are also on the anvil for this budget session of parliament itself.

In terms of the people, most received the prime minister’s speech with great hope and enthusiasm,  though a few cynics would like to wait and see if his Government’s actions match his intentions in the coming days. And this with particular reference to acts of intolerance and communal violence as many think, as does Narendra Modi himself, that economic progress should not compromise communal harmony in any way.

As far as the stock markets and international community are concerned, this Independence Day speech from the prime minister definitely reiterates that the Modi Government is committed to economic reform and substantial progress. The markets, waiting for an Independence Day Speech trigger, can now afford to power on to new heights with billions more in domestic and FII funds being invested.

(1,002 words)

August 15^th, 2014
Gautam Mukherjee

When Are The Big Moves Coming?

 

When Are The Big Moves Coming?

 The international investing community that has been putting its money where its mouth is, as well as the Indian voter that has given the BJP/NDA its impressive mandate, is disappointed at the apparent pace of change.

And if there are good reasons to make haste slowly, it is nevertheless very hard on a long suffering public who don’t know the reasons either way. This defensiveness against the bulk of the Left-Liberal private media, and the Congress moles being rooted out within DD and AIR, while understandable, are not being counter balanced by the messaging from the BJP spokespersons on the job.

There is a serious communications deficit from the Modi Government, and Prime Minister Narendra Modi himself appears to be flying below the radar, in sharp contrast to his bold and direct line to the public during the election campaign.

The contrast between before and after is making people feel orphaned, and it is no use citing the inaction and corruption of the UPA  as a blanket excuse for what appears to be ‘business as usual’ instead of the radical transformation promised.  

One hopes Prime Minister Narendra Modi is saving up some dramatic announcements and surprises for India and the world for his Independence Day speech. Certainly, the anticipation is high, stoked in no uncertain manner by NaMo himself.

 At the same time, everyone can see and appreciate the Governmental efforts to tone up the administration. And indeed it is difficult to proceed fast with  the cumbersome inter-ministerial fiefdom  system inherited, renowned for working at cross-purposes. And supported by a bureaucracy grown totally unused to hard work and time-bound programmes over the last decade. But wasn’t all this changed rapidly, days after the Modi Government assumed office?

Having said this, results so far are positive if not dramatic. The GDP is inching up, other economic parameters are improving, the Railways have been rescued from the brink, the functioning of the PSU banks is being overhauled even as the UPA scam liabilities and NPAs are threatening to overwhelm their net worth, the SAARC region regional diplomacy is stirring afresh, foreign investment limits are being raised in multiple sectors, labour laws are being modernised. But why does it still feel like so much spring-cleaning and not what the public expects from NaMo?

Announcements, while plentiful, are not going straight towards implementation, but are getting stuck and blocked in parliament or in legalese. The rump of a Congress presence, with just 44 MPs in the Lok Sabha, has nevertheless found a way to block the Government’s legislative agenda in the Rajya Sabha. There, it has 102 seats, and is successfully making common cause with some of the regional parties too.

So when will the Government call a joint session of parliament to get its laws passed? Why is the NDA Government indulging a very negative Opposition when it does not have to, and particularly when the public wants rapid progress?

Governor Raghuram Rajan at the RBI is being allowed to continue with his obsession with inflation, implying that ‘growth’ is not the central bank’s main priority. And Finance Minister Arun Jaitley is chiming in with calibrated and cautious measures for the real economy that seem much too subdued. It does not feel like enough is being done to take the economy by the scruff of its neck and catapult it to a high growth trajectory. 

This lack of big announcements and reform measures are causing impatience and disappointment in  the public’s perception of this Government. This can be very dangerous for the upcoming Assembly Elections.The loss of all three seats in recent by-elections in Uttarakhand are being interpreted by the Congress and others as early disaffection with the BJP/NDA and a reason to take heart for a gradual comeback.

Strangely, the BJP seems to want to develop a consensus with the Congress which is impossible if the latter wants to survive and revive after its electoral rout. The Modi Government is also not seen to be putting the Congress leadership under the kind of pressure it deserves for its multiple wrong-doings and scams, thereby emboldening it.

The young, at 50, Amit Shah, Prime Minister Narendra Modi’s chief election strategist and possible alter-ego, was formally anointed as President of the BJP on Saturday 9^th August 2014. During his speech on the occasion, Shah promptly warned the party cadres against complacence This, in the presence of over 2,000 BJP delegates.  Shah spoke of the need to   spread BJP’s electoral dominance to the states holding elections shortly, with special emphasis on Jammu & Kashmir, Maharashtra, Jharkhand, Bihar and Uttar Pradesh, where he wants to propel his party into winning, and on its own. He also wants to extend its influence to the entire Eastern seaboard where the BJP has been heretofore weak or absent.  Amit Shah also continued Prime Minister Modi’s electoral theme of seeking a Congress Mukt Bharat as the 130 year old Party had grown corrupt and venal.

Prime Minister Modi, speaking on the same occasion, in classic election mode himself, referred to the pressures from the developed countries in the WTO and his government’s commitment to the poor. But neither leader, addressed the growing impatience of the voting public with the gradualism of the Modi Government. And both seem unaware of the potential damage this could do to the BJP at the hustings.

(890 words)

August 10^th, 2014

Gautam Mukherjee

Acche Din Economics

Acche Din Economics

Two early indicators of economic recovery in this country historically, are the stock market and property, both seen to be rising together on positive ‘sentiment’. Elsewhere in the world, it is usually one or the other. Both are poised for growth in India now, with the stock market having proved itself to be the path-finder. And this, without benefit of a global bull-run alongside, though the West is indeed awash in liquidity. Over $ 21 billion of FII investment has come into the stock market in 2014 so far, taking the Sensex from 20,000 to 26,000, with a view that it is headed for 40,000 by the end of 2017.

Those entities that work in the Indian property market including international agencies such as Knight Frank have gone on record stating that developers and related construction industry insiders are confident that demand as well as sales will recover soon. The Union Budget push to REITS to help finance a construction revival is also expected to attract at least $10 billion in short order.

With the BJP/NDA winning a substantial majority for the first time in 30 years, the mood has changed quickly from gloom to euphoric hope. This, on the back of both domestic and foreign investment cheering expected reformist measures, such as an updation of the labour laws, sharply improved governance, movement on infrastructure bottle-necks, growing manufacture, and higher FDI limits in the process for a whole slew of sectors.

The international rating agencies such as Standard & Poor, Moody’s and Fitch have stopped threatening down-grades, despite still high  fiscal deficits, low GDP growth tending higher at last, and many other indicators of an essentially stagnant economy on a recovery path.

In the 60 plus days since assuming power, the Modi Government, to the surprise of some who may have been expecting more flamboyance, has quietly set about restoring confidence, toning up governance and maintaining continuity. It has avoided controversial moves, preferring to go in for the low-hanging fruit of better administration to perk up the economy quickly.

This, while simultaneously initiating a massive infrastructure and reform based programme, for various sectors including farming, defence, insurance, e-commerce, power, housing etc.,  designed to transform the country in the medium term.

Governor Raghuram Rajan of the Reserve Bank, in his latest review, maintained status quo yet again, keeping the Repo rate at 8%, while slightly increasing liquidity via the SLR and other measures.  The future expectations however are positive. The monsoon has already been better than anticipated and the threat of flood and drought is fading. Inflation is moderating, Rajan expects the economy to  bring it down to 8% by 2015 and 6% by 2016. Manufacturing, core sector indicators and exports have picked up, foreign exchange reserves are sufficient, and the rupee is stable. The threat of higher oil and gas prices has also receded.

However the non-performing asset (NPA) figures of public sector banks, some fuelled by collusion and corruption, the burden of coping with farm loan waivers announced by certain states, and the pressure of funding various welfare programmes and subsidies, is putting a load on  the nascent recovery.

Still, the happy data will grow by the time the next Union Budget proposals are presented in February 2015. We are likely to see 5.5% GDP growth this fiscal, with an upward trajectory going into the future.  Rajan hinted that interest rates will be cut if inflation comes down, though the time-line he anticipates takes us into 2016. This may well be bettered on the ground, as current growth accelerates.

Big-ticket foreign investment in manufacturing and infrastructure is expected to commence arising out of Prime Minister Narendra Modi’s forthcoming visit to Japan, and his later meeting with President Xi of China in particular.

Some other US, Israeli, French,  South Korean and European interest in  select areas such as White Goods, Automobiles, Defence Production, Nuclear Power Plants, Agricultural modernisation including food processing and cold chain development, the Indian Railways, Power and Alternate Energy, Roads, Ports etc. should also come shortly. Some progress on single brand retail will contribute and the bilateral moves made so far within the SAARC region may also accrue some mutual commercial and economic benefits.  With all this put together, the promise of acche din is beginning to see fruition.

A decade ago, in 2004, when Congress unexpectedly won enough seats  to cobble together the UPA, it did so with massive ‘outside’ support from 60 MPs from the CPI/CPM.  The vulnerability to the Left initially spooked the stock market, which promptly tanked. This current Government has no such coalition pressures except for a weakness of numbers in the Rajya Sabha which can however be overcome by calling a joint session of parliament to pass crucial reform bills.

Between 2004 and 2008 India actually experienced a terrific bull-run in the stock market through massive foreign investment caught up in the ‘irrational exuberance’ of a debt-fuelled rush. Our stock markets went up from around 3,000 in 2004 to over 21,000 plus on the Sensex by January 2008, when the party eventually ended in grief and tears.  The country-wide property market too powered ahead, with investors, speculators and end-users all jostling for space, with one asset class feeding on the other. All the while, in UPA I, the GDP growth rates were close to the double digit mark, sparking ebullient comments on India’s economic future in the comity of nations.

This time around, the consolidation of the Modi Government’s policies, rather than mostly iffy global cues, will be predominant. There will be massive growth not just in the early harbingers of stocks and property, but exponential growth in the real economy. India could well become a $ 6 trillion economy by 2024, representing three times its present size.

(960 words)

August 6^th, 2014

Gautam Mukherjee

Turn East

Turn East

Looking at this six years after the George W Bush presidency, when it looked like India and the US were going to be honest to goodness strategic partners at last, all such hopes were clearly misplaced and have gone up in smoke.

The US and India do not have much strategic use for each other today, reviewed three quarters of the way through the Obama administration. Instead, India is now quite rightly looking at a new world order spearheaded by BRICS, which could develop, amongst other mutually beneficial  platforms, new global trading and reserve currencies, rather than just the US dollar. India drawing closer to an almost defunct SAARC, and the possibility of full Indian participation in other South East Asian fora at the invitation of China, is also very significant. If the West has no use for India beyond the lip-service, the East may well be the way to turn.

The US has always struggled at home with its isolationist world-view, and is now more or less confused about its global role, if any, beyond its de facto military dominance. But its economy, though clear and away the biggest, is moribund; and likely to remain stagflated for decades, given its trillions of undigestible debt that weak future growth just cannot dispel. The massive deficit financing and note printing at present could also lead to another economic collapse bigger by far than the one in 2008, according to some gloom and doom ‘Black Swan’ economists.

This, even as it  paradoxically remains the mecca of technological excellence and therefore an attractive trading partner for its ideas, goods, and services.

India, as it stands, is not capable of being a geopolitical bulwark against Chinese power in South Asia, and the US and its NATO allies do not have the will or the money to promote this in a economically beleaguered era.

With the US and allied withdrawal from Afghanistan, and earlier from Iraq, there may be a yawning power vacuum in highly disturbed regions, but The US and friends have chosen to think of it as a national problem, and not their concern anymore.

This is fairly typical of American foreign policy throughout, and often repeats itself, making for much suffering and creating it an unreliable ally, beyond, the essentially Caucasian and core NATO and ANZAC groupings that has pulled together so far since WWII.

These responsibilities too are reckoned to be more strenuous now though, and not as iron-clad and automatic as all that. This is because the pockets are no longer deep, and, because of tepid response to American initiatives on the part of its protectees, tactfully called ‘allies’ all this time.

Pakistan too is no longer important in the US scheme of things, except for its threat as ‘Terrorist Central’. The entire theatre has been ceded pretty much to China as the dominant regional and global power.

The US under President Obama has shown much greater inclination to negotiate mutual hegemony with China. This despite its ‘on paper’ military obligations to Japan and Australia coming under pressure with increasing regularity, as China tests its power.

 Prime Minister Modi, going to Washington in September, cannot expect much. There will be no massive American investment into India, even in Defence Production, because of intellectual property perceptions and security concerns. America will want to sell us armaments outright instead. Nuclear Power and Shale will also stay on paper.

 As foreign investment into infrastructure development and manufacturing is a major priority for the Modi Government, it will have to turn elsewhere, to Japan and China, to make this happen. The Chinese example makes it clear that if we want double-digit growth over a consistent decade or more, we must depend on investment in infrastructure, construction and manufacturing. Our domestic resources are grossly inadequate for this and foreign investment is crucial.

But the situation is looking up. Two early indicators of economic recovery in this country historically, are the stock market and property.Both are poised for growth in India now, with the stock market having proved itself to be the path-finder. And this, without benefit of a global bull-run alongside, though the West is indeed awash in liquidity. Over $ 21 billion of FII investment has come into the stock market in 2014 so far, taking the Sensex from 20,000 to 26,000, with a view that it is headed for 40,000 by the end of 2017.

Those entities that work in the Indian property market including international agencies such as Knight Frank have gone on record stating that developers and related construction industry insiders are confident that demand as well as sales will recover soon. The Union Budget push to REITS to help finance a construction revival is also expected to attract at least $10 billion in short order.

With the BJP/NDA winning a substantial majority for the first time in 30 years, the mood has changed quickly from gloom to euphoric hope. This, on the back of both domestic and foreign investment cheering expected reformist measures, such as an updation of the labour laws, sharply improved governance, movement on infrastructure bottle-necks, growing manufacture, and higher FDI limits in the process for a whole slew of sectors.

The international rating agencies such as Standard & Poor, Moody’s and Fitch have stopped threatening down-grades, despite still high  fiscal deficits, low GDP growth tending higher at last, and many other indicators of an essentially stagnant economy on a recovery path.

In the 60 plus days since assuming power, the Modi Government, to the surprise of some who may have been expecting more flamboyance, has quietly set about restoring confidence, toning up governance and maintaining continuity. It has avoided controversial moves, preferring to go in for the low-hanging fruit of better administration to perk up the economy quickly.

This, while simultaneously initiating a massive infrastructure and reform based programme, for various sectors including farming, defence, insurance, e-commerce, power, housing etc.,  designed to transform the country in the medium term.

Big-ticket foreign investment in manufacturing and infrastructure is expected to commence arising out of Prime Minister Narendra Modi’s forthcoming visit to Japan, and his later meeting with President Xi of China.

Some other US, Israeli, French,  South Korean and European interest in  select areas such as White Goods, Automobiles, Defence Production, Nuclear Power Plants, Agricultural modernisation including food processing and cold chain development, the Indian Railways, Power and Alternate Energy, Roads, Ports etc. should also come shortly. Some progress on single brand retail will contribute its mite, and the bilateral moves made so far within the SAARC region may also accrue some mutual commercial and economic benefits.

 (1,099 words)

August 6^th, 2014

Gautam Mukherjee

The Magic Bullet Called CLU

The Magic Bullet Called CLU

India is full of legal, administrative and procedural bottle-necks cum check-points. These help people in authority to extort payment as the price of passage. These extortionists range from the petty, gate-keepers to the large fish of major import. But in all of it, there is the sickening truth that one side, in power, is taking huge and unfair advantage of the other.

And by and large, from the beat policeman, clerk, municipality official, junior engineer, on to the higher officers of the bureaucracy, appointed functionaries of every hue, elected politicians and partymen, up to union ministers and political fixers on top; everyone, is on the take.

Teduce Scope For Corruptionhe Modi Government wants to end this banana-republic style corruption in Government. It has made a small but most useful move by implementing self-attestation on most documents at the Centre, and urged the quasi-federalised States to follow suit.  This one thoughtful reduction of red-tape will henceforth save time and money. But it is just one of thousands of such improvements that need to be made.

With its general emphasis on toning up the governance process, the placing of more and more time-bound clearances such as the ‘environmental’ ones online, government sanctions and licensing are indeed becoming much quicker, more responsive and dynamic. The Modi Government is already poised to reap rich dividend just from an early toning up and implementation of this greater thrust towards efficiency. This is because even marginal improvements in various directions can gradually add up to a handsome total.

The Law Ministry is also working urgently on judicial reform, a vital area of governance that is all but inoperative. The legal system has too many redundant laws, too few judges and courts, rampant corruption, and massive back-logs.  Prime Minister Narendra Modi is on record for saying ten old and outdated laws on our statute books need to be scrapped for every new one made.

And clearly, a democracy without an effective legal redressal  system is already degenerated into a form of goonda raj or anarchy, and many symptoms of this are clearly evident today in all walks of life with its daily quota of rapes, murders and swindles. Those who break the law today know it has little hope of catching up with them, and that the law cannot deliver justice for decades even if it does nab them.

One glaring area of massive Government corruption that has vastly enriched the Chief Ministers of many States, as it is a matter generally handled personally by them, is to do with ‘land use’.

Not only is an entity that wants to build on its own land required to get its plans sanctioned and obtain various clearances from the appropriate authorities, but before all else, it has to make sure it has its CLU or ‘change of land use’ papers.

Since most land not already within the ever-expanding city is designated ‘agricultural’, it must first be converted into ‘residential’, ‘commercial’, ‘institutional’, low-density development, ‘farm-house’ as distinct from ‘agricultural land, and so on.

Sometimes, the effect of this conversion can be dramatic in terms of the land-value. The infamous Robert Vadra, whom Modi called ‘Damaadshri’ on the campaign trail, bought 3.5 acres of Gurgaon land in new Sector 83 for 7.5 crores, with money lent to  him by obliging associates, who also paid the stamp duty of rupees 45 lakhs on it. Using his clout with the Hooda Government to get its land use changed to ‘commercial’, Vadra sold it to DLF for 58 crores.

Vadra then invested the 58 crores by booking a slew of 41 flats in the Magnolias development on Golf Course Road by self-same listed real-estate major DLF. And later still, sold 38 of these after paying 7 crores in delayed payment charges. Rupees 58 crores had spun into some 350 crores by then. This, not counting the value of the one Vadra bought outright in the ultra-luxe Aralias for 11.7 crores, and yet others he booked in DLF’s Capital Greens in Delhi.

Robert Vadra also bought a half-share of a Hilton managed hotel otherwise owned by DLF in Saket, Delhi, for 35 crores plus loan liabilities, the loans advanced to him by DLF. There are other deals too but this lot was achieved in under five years, from 2008.

But Vadra’s unipolar rise, is no more than a high profile symptom of the same phenomenon prevalent elsewhere. Quite often, a State Government, first compulsorily acquired large tracts of agricultural land on the edge of the expanding city, or at other strategic locations, at a pittance, and then sold it to builders to create shops, malls, housing estates, factories and so on.

The Government earned a trickle of CLU charges out of this, but the officials and Chief Ministers concerned made thousands of crores in a flood of payola, all via a stroke of a discretionary pen exploiting a rapacious law. There were, inevitably, farmer protests and tribal unrest in different parts of the country.

Then came an idealised land acquisition law, in 2013, that has largely gone to the other extreme. It is now several times more expensive and difficult to lay hands on the agricultural land, even after the proposed amendments to the Act come into being; but it is still necessary to obtain a CLU.

The Narendra Modi Government could well consider abolishing the CLU provision altogether and restricting the process of Government oversight to the plan-sanctioning, environmental clearances etc.. This will reduce the cost of land acquisition and related expenses significantly, and help the end-user who otherwise ends up paying for it all.

When it comes to industry, particularly private industry, there is little choice for viability’s sake but to locate in remote areas where land prices and CLU rates can be tolerably borne. But how do you get men and materials to these remote corners without infrastructure being put in by the Government or the developer? The entire matter is indeed interlinked.

But the CLU requirement is outdated, a piece of legislation left over from  the licence-permit raj. It is extortionate in practice, and serves no useful purpose as a prerequisite to planning and zoning laws, usually already in place.

(1,026 words)

August 1^st, 2014

Gautam Mukherjee