Shadow Boxing

Shadow Boxing

‘Desire is full of endless distances’-Robert Hass

‘Time is a flat circle’-True Detective, SO1EP5

Immediately after the Through The Looking Glass action of the Supreme Court, the complications arising out of the apex court’s judicial activism have begun. After its firm directive to hand over the entire list of possible tax evaders to itself, it promptly handed over, back-to-back, the demanded sealed envelope of 628 old-hat names, unopened, to the Government’s constituted SIT.

But the SIT already had them, the same names, as of June 2014, when the BJP Government set it up, and quickly said so.

In mirror images, everything, as we know, is exactly its reverse, and so we must not be surprised if we get less international cooperation on the search for black money stashed abroad going forward, rather than more.

This is because the Supreme Court, in its wisdom, has potentially stomped all over the confidentiality clauses in international multilateral information sharing agreements.

In fact, anticipating as much, even as there was one, The Multilateral Competent Authority Agreement, signed on the 29^th of October by 51 countries, and a few tax havens, in the OECD Office in Berlin, Germany; India has decided, like Miss Otis, to send its regrets. This is because, should the SIT make the names  in its possession, public, then India would be in violation of the ‘shush’ clause. And there is, after all, no telling what the most-high Supreme Court may direct next in the matter, having set up a sharpish deadline for the SIT investigation thus far.

Meanwhile, Godman cum entrepreneur Baba Ramdev, very keen on the issue, has opined that the real meat is actually in the UBS list, and the Government must try and get the alleged 8,000 Indian names on it. The HSBC list, he said, has been kicking around for so long already. The implication being, that everyone on it has made alternative arrangements for their lucre, filthy black, or clean as driven snow, by now.

The SIT on its part, not to be thought of as inaccessible, allowed that about half the people on the list of 628 were residents, and the others were NRIs. Meanwhile, the world is inching ahead, now within a couple of months of Christmas.

And there are two more information sharing pacts on the anvil, one with Switzerland, and the other, a tax compliance agreement with the United States, Foreign Account Tax Compliance Act Alert (FATCA), that have also been placed in jeopardy, as of now, for the same reason of possible confidentiality clause breaches. If the US one is not signed, it will mean that withholding tax will be deducted from remittances sent abroad via Indian Banks operating in the US.

Meanwhile, there are many tantalizing numbers and stories being bandied about- over $450 billion stashed in Switzerland alone since 1947,sadly whittled down to $140 billion lately, says one such. Another reminisces about a long-standing Congress stalwart of a former Union Minister for nearly everything, long rumored to accept all his ‘gratuities’, not in wads of hawala-needing notes, but in neat little pouches of quality diamonds. These being  easy to carry in the folds of his never searched, diplomatically immune Khadi kurta, and place in a numbered safety deposit box in Zurich, and when that got a little heavy, another one in Geneva, and then yet another in Berne, and so on. This is, of course, as modus operandi, both smart and classy. The richest Jews, over the centuries, burdened by the proverbial Mark of Cain, would certainly approve.

Besides, the poor people in the SIT have their work cut out for them! At the best of times, the SIT will find it is dealing with some very intelligent and sophisticated people on its present and other future lists that may land with a thump on its floor mat. These are serious-minded folk with access to the best in advisers, lawyers, accountants, bankers, fixers, intelligence inputs, lobbyists and PR agents.

Flat-footed, gum-shoed sleuths, and even ones with perfect arches, will not get very far on earnestness alone.  Besides, they truly need to be incorruptible themselves. The recent stories about the CBI Director Ranjit Sinha’s impressive Visitor’s Log, and his wanting investigations on it length , breadth, and heft, to be held ‘in camera’, is not very encouraging. And it also puts a further shading to the CBI’s reputation of being a ‘caged parrot’.

While it was long assumed the ‘cage’, such as it is, belonged to the Government, as did the ‘parrot’ within, the current Director’s residential Visitor’s Log seems to indicate a greater independence of spirit at the apex of the CBI.

The BJP Government plans to ask the SIT what it proposes to do regarding confidentiality of the names given to it, and going forward, with a mind to signing some of the information sharing treaties in future.  The SIT, being a creature of the ruling Government, is sure to answer with vows of silence and promises of swift, diligent, quiet, efficient investigations. Left to itself that is.

But, the SIT, indeed the Union Government too, can’t do anything but comply, if asked to figuratively sing, even dance, by the Supreme Court of India; within, of course, the present legal framework!

(874 words)

October 30^th, 2014

Gautam Mukherjee

Sealed Envelope Revelations

Sealed Envelope Revelations

Has the Supreme Court, in its extraordinary and athletic activism, bitten off more than a vigilante would care to chew upon?

Can it actually cause to bring back, any, let alone all, of the money stacked abroad, just by directing the Indian Government with its on high strictures? If this comes to pass, India will have changed for all time, and somewhat miraculously, a bit like flying about on a high trapeze without any visible swings.

Which is why, despite the clamorous din this subject evokes in the national media, the chances of even a limited success ultimately, are extremely dim.

BJP’s prime ministerial candidate  Narendra Modi, and others, amongst the BJP and its supporters, made full use of the emotive issue during the electoral campaign, talking of trillions of dollars to rival several years of national GDP. But this was to win power at the Centre. Delivering on this thorny issue when in power is a wholly different matter, fraught as it is, with legal loopholes and plausible deniability.

Besides, let us be clear, that other Governments, Banks etc. are not in the writ or sway of India’s Supreme Court, mighty as it may be, and it may be setting itself up for a humiliating embarrassment, when our Government, compelled to carry out its ham-fisted directives, or face contempt of court charges, is roundly ignored, or downright turned away. Even mighty America’s record on trying to redress the balance on this truism is patchy at best.

Crooks know, have always counted on, the idea, that the best thing to do with ill-gotten gains is to get it out of the country. This is true of every thief universally, and places like Switzerland, Liechtenstein and every island tax haven around the globe, have catered to such people for centuries on a no- questions-asked- and mum’s the word basis.

The Swiss banks are said to be bedrock rich today on the unclaimed billions in deposits of rich Jews without heirs, eliminated in the Holocaust. This, even as their money keeps earning compound interest, and is now, to all intents and purposes, the Banks’ own money, along with that of sundry dictators and criminals in similar circumstances.

The Supreme Court will now get, because it made bold to ask for it, a complete list of ‘stolen names’  obtained,  as it happens, by bribery, from disgruntled  bank officials  in Switzerland and Lichtenstein in 2009 and 2011. Those were the salad days of UPA times. The names, albeit passed on by the German and French governments, who incidentally discovered a large number of  Indian sounding names on it, while trying to ferret out their own tax evaders.

But ethnic Indians these days possess a rainbow of different nationalities for a start. The head of the Tata Group in India, Cyrus Mistry is, for example, an Irish National, as is his father and Svengali, Pallonji Mistry.

The Supreme Court, indeed at the apex of all the over- burdened Indian courts, from the Sessions and District levels, to the State High Courts; has been muscling into the province of the Executive and the Legislature for quite a while now.  Perhaps it started, poignantly in retrospect, with the Allahabad High Court, precipitating the Emergency, by voiding Indira Gandhi’s election way back when.

And now, it wants to   be, perhaps unknowingly, both Communist-hating anathema Joe McCarthy and the Witchfinder General, rolled up into one, on the issue of Bollywood evocative Kala Dhan, Black Money, illegal foreign accounts, terrorism, kick-back and drug money, smuggling, prostitution, white slavery, arms trading; what have you. 

It is what another analyst called the proceeds of ‘red money’ as in ‘blood-diamonds’, plus the ‘black’. Do we have the legal framework to tackle both?

The public, especially those who used to frequent what were once called the ‘stall seats’ in the  single screen cinemas of yore, and not a  few from the middle class, are delighted at the prospect. Nothing like a public hanging or a drawing and quartering or something like this in its modern day avatar!  Schadenfreude,  the Germans call it, institutionalising the perverse sentiment, it is the joy we get  from witnessing, or even anticipating, another’s downfall.

Is all this just a cleansing or an exercise in puritanical morality returning to governance? Has the BJP and the UPA, when it was in power, been dragging it out, in order to protect its own venality? Or is the whole thing incredibly difficult to pull off, what with its massive privacy issues, no matter how much baying for blood is indulged in by a provoked,  politically manipulated,  but simplistic public?

Are we really going to see any of the money coming back? I would not hold my breath, through all the racket. Will anyone’s property be confiscated in anticipation, with the burden of proof placed on his media condemned shoulders? I hope not, because despite what Vadra says, I like to think we are not a banana republic.

Will anyone go to jail? Well, then sitting CM of Tamil Nadu  Jayalalalithaa did, for massive graft and corruption, along with all her closenesses . That too, on the say so of a fire and brimstone Goan Sessions Judge, backed up by a High Court judge from Karnataka. So, in today’s India, it is quite possible.

Some things may indeed have changed in this country. But really, by how much? And do we, as a country, have the clout to bring the money back from foreign banks? What if the accused start shifting it about the globe, if they haven’t done so already, in anticipation, and at the suggestion of their bankers? 

Will we see any of the trillions that could theoretically cancel our National Debt and create surpluses to rival China’s? Well, I for one, doubt it, but am looking forward to the headlines.  

(968 words)

October 28^th, 2014

Gautam Mukherjee

The Indian Property Market Is In Dire Straits

The Indian Property Market Is In Dire Straits

While the Modi Government may want to provide housing and toilets for all by 2022, and launch a 100 Smart Cities shortly, the housing sector today is both in an unregulated mess and in dire financial straits.

Two things generally indicate how the consumer is feeling- houses and cars. Both industries are still iffy  in India, with vehicle sales picking up a little but still wobbly, and sales of apartments and flats very much in the doldrums.

The Government needs to execute a series of far reaching reforms urgently to revive this vital sector of the economy. Construction and housing  provide offtakes to quite a few manufacturing and service sectors including architecture, marketing, advertising, cement, steel, bricks, sanitary-ware, flooring, tiling, lighting, furniture etc., on the growth of which such industry is co-dependent.

Together, this lot contributes as much as 17% of the GDP, and many lakhs of jobs. The housing industry as it stands, contributes as much as agriculture to the GDP, even though the latter may account for a far more sizeable chunk of the total population.

The property market is badly depressed at present, owing to a mismatch between demand and supply, compounded by Government neglect and apathy, high interest rates, over-leveraged builders, and stubbornly high inflation affected construction costs.

The economy on the whole cannot be revived unless the stagnation and worse in this area of works is put right first. All over the world, the health of the residential and commercial construction sector is a key measurement with regard to the state of the economy. The Indian property market, throughout the country, has been depressed for five years now, with a further down turn over the last three.

The NCR has unsold inventory of 303,000 apartments, that will take nearly five years to clear at the present rate of sales, according to real estate research firm Liases Foras. And within this alarming statistic, Delhi itself, with its high-priced builder flats, mushrooming in place of older houses, has as much as 20% in unsold stock.

The key markets of Gurgaon, Noida, and Bhiwadi in the NCR, are staring at some 50% of the total under construction unsold at this time; with speculators, as opposed to end users, accounting for half of the other half. And the investors, unable to hold out indefinitely in the depressed market, are off-loading their purchase at discounts to the builder’s prices, further aggravating the problem.

The story is similar, if somewhat better, in Mumbai and Bangalore. The high-priced MMR region has 168,000 apartments yet to find buyers, and Bangalore, largely an end-user market,  is still groaning under the weight of 113,000 unsold flats according to Liases Foras.

High interest rates too are keeping would be buyers away from contracting home loans. Massive builder debt and interest payments, sharply increased construction cost, a stagnating economy,  all are factors why this sector is in trouble. Unless demand picks up soon, there will be a spate of inordinate delays, defaults, even bankruptcies.

Luckily, the situation does not quite amount to a full-fledged housing bubble, with about half the inventory sold by the builders on average, but the asset class is unlikely to generate the kind of capital gains associated with it over the next several years.

Both the residential and commercial markets however do have enough pent up demand to be ultimately absorbed, as long as further supply is put on hold. But, since the industry cannot grind to a complete halt when it comes to new launches, given that several builders have land banks and licenses in hand, the problem will be aggravated further.

Still, there will be few new launches that can hope to succeed in these market conditions, even if they have thinned out considerably. New launches are also a cheap source of funds for cash strapped builders, who need to complete ongoing projects.

It is however unclear, whether any category, ranging from the affordable and mid-segment, to the luxury projects, are outperforming the rest. All sections of the market are uniformly suffering low demand and over-supply. The resale market is only active for bargain hunters looking for distressed sales.

Various problems of property buyers, facing one-sided contractual arrangements from the builders, have also been pending Government action for a very long time. In addition, the builders who have over-built illegally, or built on land acquired by the Government at a pittance from farmers, are facing farmer agitation, litigation and stoppages.

This, even as many customers have paid large sums as installments to the builder, and expensive EMIs to the lending banks. Environmental restrictions, applied strangely, after the fact, to developments near sanctuaries and the like are also destabilizing market sentiment and worse.

Private and sarkari developments alike are dependent on the Government and municipal authorities to  build and provide ‘livability’ by way of new roads, electricity connections, water, sewage, security, street lights etc.. But many of the developments in outlying areas, particularly in the NCR, are marooned today in a sea of mud, with no clarity as to when their problems may be addressed, let alone solved.  Road connectivity promised in particular is mired in multiple litigation, with the original land owners demanding higher compensation and alternative developed plots in lieu of the agricultural land acquired forcefully at low prices by the Government and passed on to the Builders. 

In the resultant chaos arising from all these reasons, many housing towers are half-built and stalled by cash-strapped builders, and even those nearing completion, years late, still have no roads and other amenities to service them.

Politically, the BJP, if it wins Jharkhand outright, as is expected, and props up a PDP Government in  Kashmir come December, will have done very well indeed.  Particularly on top of its recent wins in Haryana and Maharashtra.

But economically, the hole dug by the previous UPA Government is both deep and wide. To fill such a cavity is going to take enormous doing. Fortunately, many of the macro factors are heartening, particularly the lowering of inflation due to lower oil prices .

The interlinked housing, office, and infrastructural sectors need to grow sharply, and could be the way to get the Indian economy into double digit GDP growth in the shortest possible time.

What it needs however, is huge investment. This investment can come, both from internal and external sources, if interest rates are lowered, taxes are cut, and FDI is encouraged.  The 100 Smart Cities and housing for all only make sense if conditions are created for this sector of the economy to thrive afresh. This includes tweaking existing land acquisition legislation and the framing of  new incentives.

(1,104 words)

October 27, 2014

Gautam Mukherjee

Dragon Pillow Talk

 Dragon Pillow Talk

There are doubts, Chinese Whispers really, being expressed about China’s economic health. Neil Gough recently wrote in the New York Times that the Chinese GDP figures are suspect. Implying that, like all totalitarian states of yore, modern-day China cooks its figures. He writes that the currently lukewarm export numbers are being boosted with book-entry exports to Hong Kong, its increasingly troublesome outlier province.

And that the various Chinese provinces have reported growth figures that don’t tally with the national figures; that the total is actually higher than the reported sum of all the parts. But the bottom line is, though China’s growth may have softened below its own domestic needs, it is far from stagnant. The good news for others rejoicing at lower commodity prices, is that Chinese   demand won’t cause them to spike upwards.

Gough says China’s debt, presumably internal, to its own closely controlled banks, has risen to 250% of its suspect GDP at the end of June 2014. This up from 150% of the GDP five years ago per the Standard Chartered Bank.  On the other hand, let us remember that China does have a spectacular $ 4 trillion in foreign exchange reserves! An economic crisis in China is therefore not imminent, even as it attempts to make fundamental and structural changes in the way its economy is composed. It has a lot of spare manufacturing capacity built over its roaring growth years. Likewise sizeable infrastructure building and contracting ability is sitting on its hands at present.

And that is why India with its needs in precisely those underemployed regions, is being eyed as something of a savior. The backlog of mistrust and border tensions has to be addressed, but this strategic shift towards India is acknowledged to be a policy direction appropriate to the times in the Chinese matrix.  

The current Chinese GDP growth figure and target, in the modest region of 7.5% per annum, is still very respectable, though down from double digits and thereabouts for 25 consecutive years. But China deliberately wants to cool down its overheated economy now. It is more concerned about excessive debt and the potential effect on its fixed price currency. The policy is now to get away from credit-fuelled growth, and substitute it instead with domestic consumption.

This again, is not to be dismissed, even if it falls short of China’s gargantuan appetite. At some 12% increase in retail sales this year, there is nothing wrong with the level of consumption. There is also a lot of purchasing going online, a trend that is the shape of the future internationally, and some analyst estimates reckon this is at six times the retail brick and mortar sales value. But can domestic consumption alone ever replace the huge growth over the last three decades?

The Chinese leadership understands the situation, and does not mind if retail consumption falls below projections. What they want is to bring down the debt, and cool the economy before it implodes, like so many in Europe have done, and where the US economy, the most powerful, hovered for several months after January 2008.

This chequered Chinese outlook comes on top of all the tension-making economic news from Europe. The warring in West Asia, the Ebola threat from Africa, tensions with Russia and the Ukraine, the perpetual and disruptive security threats emanating from the global terrorist networks, are all giving prominence to the CBOE VIX ‘Fear Index’, and promoting volatility in the global stock markets.

The sharp US dollar strengthening, based on pronouncements and hints from the Federal Reserve Bank on the end of tapering and the beginning of interest rate increases, whether it will come sooner than anticipated, signalling tighter liquidity, or later; are also causing global investments to be shifted about abruptly.

 This may also particularly impact the Emerging Markets (EMs), including, as it stands, China and India though India expects to out- perform based on its strong Government, better economic parameters, reform and  promise.

Nevertheless, if The US economy revives convincingly, much of the global investment money is expected to relocate to the traditional ‘safe haven’ of the American bourses. The recent and sudden, about 10% sell-off in the US indices on Dow Jones, S&P 500 and NASDAQ, is considered a healthy blood-letting, and the nascent revival from those lower levels, augurs well for a fresh bout of global bullishness. This, with the European bourses, having little to cheer about locally, following the US cues instead.

Will China sink the flotilla going forward? It does not seem likely, despite being in the throes of its economy in transition.

(765 words)

October 21, 2014
Gautam Mukherjee

 

Diwali Lights

 

Diwali Lights

 Diesel deregulation is the first of the big bang economic reforms undertaken by the Narendra Modi Government, and will eliminate up to one lakh crore in subsidies. To bring down fuel prices further, impacting, as it does, the prices of everything, the Government should perhaps consider cutting down the onerous central and state taxes. These make Indian petrol and diesel prices higher than most places in the world.

India has layers of indirect taxes on nearly everything except the air we breathe. And all this money is used very inefficiently by an obscenely bloated and wasteful Government apparatus, with little or no accountability. The CAG keeps pointing this out on nearly everything it audits. The Finance Ministry, now making ready to bring about far-reaching structural reform, must look at how all the lazy taxation affects the competitiveness of this country in the global market place.

Diesel deregulation however, coming  in tandem with the slight hike in gas prices will make further exploration, particularly in the deep well areas, and resultant production more viable, particularly as it will be periodically reviewed. But should the case be made to remove subsidies on largely gas-fuelled chemical fertilizer as well?

Meanwhile, the big wins in Maharashtra and Haryana has placed an estimated 40% of the GDP producing engines under direct BJP rule. Coupled with reforms that will encourage and render viable ‘Make in India’ and the resultant FDI, this percentage should gradually represent much larger absolute numbers, if not a lion’s share of India’s profitable manufacturing establishments. Of course, it is hoped that the Modi Government’s manufacturing push will equally benefit all parts of the country simultaneously, including, and particularly those regions which are lagging behind at present.

The stock markets have opened 1.5% up on Monday 20^th October, at the beginning of Diwali week, to reflect a renewed optimism. With a relief rally, if not a revival in the global stock markets to back the resurgence in India, it is poised once again to reach new all-time highs. The market gurus and analysts are reasserting afresh that India is in a multi-year bull market.
To take advantage of this favourable wind, let us hope there are a slew of financial  market reforms to create a state-of-the-art and international grade set of bourses, with the investment products to suit, so that greater amounts of FII can comfortably be accommodated.

There are international jitters to contend with, now and going forward, particularly with bad economic performance emerging from the last bastions of the EU, namely Germany and France, slowed growth in China, as well as wobbly recovery in the US and Japan. And then there is the paranoid fear of an Ebola epidemic.

The Chicago Board Options Exchange (CBOE) VIX Index of Volatility, popularly known as the Fear Index, currently sits at about 24.64, up 80% from the beginning of the year, and 50% up this month alone. This level was last seen in 2012 when the Eurozone Debt Crisis was particularly threatening. This may be an exaggeration, because the US markets may well bottom out at these levels, but still, these indications, above the 20 year average of 20, are nothing to be sniffed at. Nevertheless, the VIX is presently 80% below the shrieking panic that ensued after the collapse of Wall Street in 2008.

The Indian VIX, based on Nifty Options, is at 16.40 now, and the volatility here is not, as yet, particularly alarming, moving in a band of 4 points in this and the last several months, but with an upwards bias month on month, over the last six months. The idea, that with improving economic parameters, that India can de-link from global trends is impracticable; but when the worm turns, and the CBOE VIX  calms down, to say, 10, as it was at in July 2014, India will get a better funds flow as the best performing Emerging Market (EM).

Outside of the headline news, the bringing in of Rajiv Mehrishi, the author of Rajasthan reforms in recent months, as Finance Secretary, augurs well. The arrival of Arvind Subramanian, thought to also be a strong reformer, as Chief Economic Advisor, should also result in early interest rate cuts.

The time for rate cuts has already arrived, thanks to lower inflation on the back of lower fuel prices, and the sooner the Government moves on this the better. The light, administrative moves on the Labour Laws are welcome, but they urgently need radical legislative surgery. 

There is now a sense of movement on the big economic issues, neglected for years by the previous Government. While the Modi Government has to be commended to have got cracking within five months of its advent, can we hope to see much more, between now, the Winter Session of Parliament, and the Annual Budget in February 2015?    

 (802 words)

October 20^th , 2014
Gautam Mukherjee

Oil Economics

 

 
Oil Economics

It was down to $83 odd a barrel before attaining $84 this week, down from $115 at the peak,  when talk was of it hitting $200 per barrel and crippling the economies of countries like India, abjectly dependent on imported oil.

Anything we can do in the easing of the current changed scenario, to diversify our energy sources, from solar to hydro to nuclear to wind and wave,  would, in any event, not come a moment too soon.

OPEC, the bane of the oil consuming countries from the Seventies when the first of the future shocks of hiked up oil prices first roiled the economies of the world, is now squealing in an ironically porcine manner, and scurrying to retain its customers.

The cartel is cracking, debating whether to cut production or reduce prices.  It is morphing into a Bedouin bazaar afresh. Saudi Arabia, Kuwait, Iraq, Iran, all have declared for lower prices. Venezuela, across the way in distant South America, may want cuts, but no one is listening.  America, in its neighbourhood, does not need its oil. It was, not long ago, OPEC’s 50% customer, but now is both self-sufficient and a net exporter. It has farmed new fields and discoveries,  exploiting them over the last decade, and turned shale oil into a viable, technical reality, based on adequate home based reserves. Russia, also not in OPEC, is selling its oil to whoever wants it, as are several others in its region. Demand in general is down from Europe and China, as their economic engines have slowed.

India, trying to grow, has an 80% dependency on imported oil.  With lowering procurement prices, down over 20% already, it is reportedly planning to cut diesel prices at the retail pump by an unprecended Rs. 3.50/litre, all at one go, in the first reduction of diesel prices in over 5 years. Transportation will be cheaper. Vegetable and food prices will come down.

The Modi Government may still fight shy of diesel deregulation because of the political implications should prices spike afresh. But will it, because deregulation means saying goodbye to over one lakh crores per annum in diesel subsidy, permanently, a lot of which is not going to the poor at all?

The prices, in any case are headed lower, even as some noted commodity investors think the prices are being manipulated lower. The implication is that the Saudis, with their huge oil reserves, want to drive prices down below viability for the expensive to produce shale oil. China too has an estimated 50% of the world’s untapped shale reserves.  

Saudi Arabia allegedly wants to prevent further exploitation of shale by driving down prices. But will this strategy, if indeed it is in place, be backed  by other, lesser producers in OPEC? Other commodity analysts say that the global demand supply dynamics have changed permanently. That petroleum prices are going to settle at around $ 70 a barrel.

If it comes about soon, such low petroleum prices, will significantly slow the ravages of inflation in India. The Rupee will strengthen. It will trim both current and fiscal account deficits, markedly improve  GDP rates and stimulate business, industry, agriculture and services. This, particularly if other subsidies beyond diesel are also cut, and expensive welfare programmes are accurately targeted to benefit only the poorest.

For India, sharply lower oil prices affords a wonderful opportunity for the Modi Government to fast track its development and reforms agenda. Interest rates can be boldly lowered, sooner rather than later. Gas prices can be slashed. Subsidies on petroleum based fertilizers can also be removed.

The Government can afford  to undertake a substantial external borrowing programme to finance its share of the most  urgent and important infrastructure developments.  Taxes can be cut. Our un der-funded PSU Banks can be better capitalised, and partially privatised for greater efficiency and less corruption .

The stock markets can be modernised and liberalised to accept much higher levels of FII, perhaps at least $100 billion dollars a year instead of the $30 billion odd coming in at present, between the equity and debt markets combined. This area is particularly ripe for reform, both in terms of policy, investment products, and technological improvements, to make it a world class affair. Because, as it stands today, India still has a surprisingly small market cap, and a highly restrictive debt market, given that it is the second fastest growing economy in the world.

This enhanced FII liquidity, quick to arrive if the right moves are made, could further serve, not only to bolster our currency, but contribute much more to finance the fiscal deficit. As it is, the Government does depend on these FII flows, as well as the remittances from NRIs, for long the largest inflow in the world, to manage its finances.

Prime Minister Narendra Modi seems absolutely ready and willing to move on the economy right now. This fortuitous oil price dividend can only help in multiple ways.

(825 words)

October 17, 2014
Gautam Mukherjee

The Commeuppance Of The Upstart

 

The Comeuppance Of The Upstart

 SEBI has just dropped its second high profile quarry with its accurate elephant gun. DLF shares, under pressure for some time, both from the flow of bad news and court strictures applied, tanked  27%  on 14^th October. It wiped out $1.3 billion in shareholder value, and a big chunk of DLF’s reputation.

Rewind to about 2008, its IPO was in 2007, and we suddenly find DLF, owned and run by thick-accented mofussil  types in expensive suits, pushing its way into the same league as tried and tested stars of the private sector, such as the TATAs, BIRLAs, by then gentrified and professionalised RELIANCE, and  likewise Ludhiana/Jullunder/Delhi-bred BHARTI.

It made one wonder then just how DLF managed such high valuations for its land banks when it paid the Gurgaon district farmers an absolute pittance for the very self-same in the eighties?  And how did DLF, with nothing to show for itself, beyond about  3,000 acres of largely sold off ‘DLF City’  land in Gurgaon,  still pull off one of the largest IPOs of all Indian time?

Was it just the exaggerated effect of the last bull market? Or was it also the entire IPO barrage, they did have two false starts before they went through with it- money lavishly spread about in the right places via a raft of investment bankers, underwriters, rating agencies, Ad and PR men, bureaucrats and politicians?

After all, the stock market can, on occasion, be a very rigged thing; and this was before SEBI had been given biting teeth, and the desire to put people like Subrata Roy Sahara in jail. And now it bans the equally high profile DLF, KP Singh, family, and friends, from accessing it for three whole years.

This has come at an inconvenient time, as such things have a knack of doing, when DLF is nursing nearly 20,000 crores in debt. And who knows what the story is on its true asset valuations, its delayed projects, or its unsold residential/commercial stock-in-trade. Perhaps it will try to  raise money abroad now. How does this affect its hidden associates?

The DLF story began when the refugee company  was put to work by Prime Minister Nehru, soon after independence, to build new colonies in the wilderness that grew into South Delhi. South Extension, Hauz Khas, Greater Kailash 1 and 2, etc. all came up, in their narrow-laned glory, during this first avatar of DLF.  Then, they were put out of business in 1957, in favour of the truly horrendous Government-owned DDA, which nevertheless was given a monopoly for residential development etc. in Delhi.

The second coming was in Gurgaon, thanks to grandson Rajiv Gandhi, just after he became PM. The sharp tactics of DLF, this time around, are both legendary and legion, and has been for decades, particularly amongst their ordinary customers, too weak in themselves to do anything about it.

That is, until they banded together, sued, and won, with DLF being fined some Rs. 630 crores recently - for hostile leveraging of its dominant market position, taking unfair advantage of its ordinary customers, delaying projects, indulging in additional construction not agreed to at first, and so on.

DLF is also both blatant and blasé about its exploitation of political connections. The various linkages with both Chief Minister Hooda of Haryana and damaadshri  Robert Vadra, in recent times, are illustrative. The crony capitalism and ‘private sales’ to the rich and influential also always ran hand in hand. Those who count have benefited from DLF’s developments. But the DLF writ, for all its savvy, does not seem to run much beyond Mohali, and certainly not in Mumbai or the South where DLF forays have not taken hold.

Sadly, DLF’s muscular ways have inspired many other smaller developers to behave likewise, with an abundance of advertising to push the home owner’s dream, and a paucity of integrity and trustworthiness on the ground once the money changes hands. After all, if the oldest and biggest developer in the North can show scant respect for its customers, then why not the arrivestes? 

Ansal, another family owned enterprise, which also started fanning out at around the same time, both in round one and two, came unstuck after the Uphaar fire tragedy- a blow to their reputation that they have never recovered from since. But then again, the callousness seems par for the course.

DLF may have been luckier till now, but certainly no better when it comes to integrity and corporate governance. It may have been caught for misstatements during the IPO by SEBI, ironically a relatively minor dodge amongst the many unproven, but with a big consequence as it turns out.  But the more important thing from the customer’s point of view is that in its manners and mores, despite its billions in market cap as a public company, DLF has a culture that has more in common with rough and ready brokers in tents, rather than those others  in India Inc.’s top ten.

(824 words)

October 14^th, 2014
Gautam Mukherjee

Toujour L'audace

 Toujours L’audace

 We have to be greater than what we suffer

From Spiderman 2          

George Danton, a leader of the French Revolution extolled the virtues of audacity, first, as it is recorded, followed  later by Emperor Napoleon Bonaparte, and US General Patton, later still.  ‘Audacity of Hope’ was also the name of one of  President Barack Obama’s books, much publicised and analysed in the run up to his first term in office. The word is certainly a morale booster with its hint of impetuosity. It is another matter that audacity seems to serve only in short bursts.

Narendra Modi, with his spectacular rise from humble beginnings, is probably cut from similarly audacious cloth, though, loner that he is, he mostly goads himself into ever more spectacular performance.  But a lot of it so far as Prime Minister has been electoral in nature, inclusive of something of a victory lap through some international capitals gathering pledges of future investment.

The hard, if mundane business of day-to-day governance, and far-reaching economic reform are yet to receive that audacious touch. In fact, in matters economic and domestic, there is a curious display of an abundance of caution.  And his ministerial council appears to be, one and all, marking time and awaiting further orders. Audacity and Caution then, in a  potentially  combustible political mix- where is it all headed?

The Maharashtra and Haryana election results are awaited shortly. BJP is expected to wrest power in both States, and if it does so, it will be a vindication of the strategies laid out by the Prime Minister and the BJP President.  Others in the party have no doubt played their part, but it is the ‘dynamic duo’ that calls all the important shots.  That is how it is, and will be, going forward, the tried and tested partnership, cemented by past and impending success.

Both men will give credence to the policy  adopted, of going it practically alone in assembly elections wherever possible. This, in order to establish BJP firmly as the only national party of governance in due course.

These anticipated victories, Maharashtra for its many very useful Rajya Sabha seats, and the moneyed influence from the commercial capital of Mumbai; and Haryana for its glittering Gurgaon district, are definitely prizes well worth the having.

But hopefully, soon after the results are announced, and the hosannas have receded, Narendra Modi will make bold to pump-prime the languishing economy, waiting on him for specific moves, ever since the BJP won power in May. CPI inflation is down, likewise WPI, the CAD is looking good, but industrial output, and core sector data, is languishing. International money flows are in go-slow mode awaiting developments.

Many things need to be done urgently. Interest rates need to be lowered to bring cheer to business and industry.  Labour laws need to be changed.  Extraneous taxes on manufacturing have to be scrapped. The linking of GAAR to at least 7% growth in GDP, a good move recently announced, is a way of putting it in cold storage. We need more business confidence building measures like this. The Bombay High Court judgment last week, exempting Vodafone from taxes applied, if left unchallenged, will also send out the right signal.  Land has to be quickly acquired for roads, railways, factories, ports and utilities. The legal system needs to become more efficient. The slogans of minimum government, maximum governance and red carpet not red tape have to be given content to. The list of pending  items is indeed very long, because India has never really had an efficient government  before either.

In tackling the ills of our economy, the steadily reducing oil prices are a great and timely boon. OPEC members have even begun to disagree amongst themselves on whether to cut prices or production. Oil prices are already in the eighties and tending lower from all-time highs of around $115 per barrel.

Saudi Arabia, the biggest producer, long held fast for an average yield of $100 per barrel, partly because its expenditure was just below its revenue yield at that price. It has now opened the floodgates to lower prices by saying informally that it is willing to take $80 per barrel if need be. Saudi Arabia is contemplating building up deficits instead of surpluses for the first time in decades. This is a changed world of too much oil and not enough demand. Some international brokerages have indicated oil prices will reduce further to around $ 70 a barrel, and Saudi Arabia probably knows this.

Of course, the price at present is still holding up at about $88 a barrel, but Iraq has already followed the theme, with discounts.  Venezuela wants to cut production but is not getting any support for its stance from the others. The powerful oil cartels, ruling the roost since the Seventies, is slipping, and prices going forward may well be determined by demand and supply after all.

In the near to medium term, this scenario, when India imports 80% of an ever growing quantity of petroleum, is a wonderful opportunity for us to push through a number of structural reforms. Will NaMo seize the moment with audacity or lose the opportunity to make deep and permanent changes?  Half measures will simply not do.

India will not become the manufacturing hub of the world he wants to see without becoming a welcoming investment destination. India will not go towards double digit growth either, not without great and sweeping boosters applied to business, industry, services, agriculture, infrastructure, and yes, governance.

It is almost certain, from the perspective of these  early days, that Narendra Modi’s Government will do much better than the UPA that preceded it. But will it live up to its own promise? The people did not elect Narendra Modi to be handed a slightly better deal than before. Besides, with the demographic pressures operating in this country, that kind of gradualism will be dangerously inadequate. The demand from the voting public is fast and total transformation of this country.

In NaMo’s first term, the country expects to be set on course to become a developed country, and in the second, to come, it expects to have made considerable progress along this road. For NaMo personally, it is an epoch-making opportunity and seems tantalizingly close at hand.

The point is, that NaMo has not missed a beat in terms of his vision. He seems to be exactly in step with the aspirations of India’s millions. The problem looming however is not with the words, but with the speed of the deeds that must accompany them, but have not as yet.  

(1,100 words)

October 14^th, 2014
Gautam Mukherjee

Reinvention

 

 Reinvention

 'History is a canvas constantly repainted’

From Da Vinci’s Demons, SO2E06.

After October 19^th, it is quite possible that the Congress will be left with a tenuous hold on just one state government, that of Karnataka. And, with its severe infighting and corruption, endemic, it seems, to all Congress administration, how long before that too slips away?

This, even as  its strangely  Hamlet-like absentee Vice President Rahul Gandhi,  is reportedly making an attempt to supplant the old guard in the decision making bodies of the Congress, with his pals in ‘generation next’.  His ailing mother Sonia Gandhi too belongs to the departing era, successful though her innings at the helm have largely been.

 The fatal DNA flaw however may now be that both mother and son share an ineffective socialist vision that is seriously out-of-date. They may reflect on the fact that their role models of the Labour Party in the UK and the Democratic Party in the US have also been forced to move persistently to the Right in today’s world.

One analysis recently sees the niggardliness in the Congress dispensation’s emphasis on ‘poverty alleviation’ through rafts of expensive welfare measures, as opposed to, and in contrast with, Narendra Modi’s  ‘poverty eradication’ ambition.

Modi wants to turn India into the world’s manufacturing hub generating millions of new jobs in the process. He wants to clean up the physical and body politic. He wants smart cities, modern Railways, defence production, digital administration, modern farming and distribution backbones, with homes and toilets for all by 2022. He wants massive foreign investment, reformed laws, administrative overhaul and more of this ilk. How then can Congress’ one big ‘lady bountiful’  idea of badly administered hand-outs, compete with aspirational growth in a demographically young India?

In the corporate world, the most dramatic rebooting that took place recently is probably that of former IT bellwether Infosys. The new management, under former SAP veteran Vishal Sikka, will take the company into emphatically new and profitable directions. The old strategies are seen to be played out, quite like the band of ageing men who founded Infosys. But at least they have had the wisdom to let it go now .

While this copycat revamping intent on the part of Rahul Gandhi may be inspired by Narendra Modi’s  successful  turfing out of the BJP elders from positions of power; the youngish dynast has been, for quite some time, running election strategy, disastrously at that, with his inept band of newbies, mostly sons of old Congressmen, like himself.

Besides, the NaMo effect has broken the jinx, indeed the mould, of the BJP, congenetically unable to win more than 160 seats in the Lok Sabha.  But now, it is neither ‘untouchable’, nor concerned with any slurs to that effect. It runs a majority government at the centre, the first in 30 years. It is  building upon itself by pursuing  a policy of extending its reach and consolidating its hold on the states.

The heavy dependence on the NDA, so much the case in the Vajpayee administration, is gone as of May 16^th, and if the composition of the Rajya Sabha also changes in its favour, the remaining neediness will also evaporate.

Polls that show that the Shiv Sena does not stand a chance of forming a government on its own in Maharashtra, also tell us that the BJP was right to call their bluff. That the 25 year old alliance is broken is no bad thing when it is viewed in the context of the BJP growing into its role. It wants to become the main party of governance in the country.  

This emergence of the BJP as an electoral force on its own has been gradual, but it was accelerated once it found a charismatic and bold leader in Narendra Modi. Let us remember that the BJD broke away in 2009, and the JDU in the run up to 2014, convinced they were serving their own best interests. The last major ally, still left in the NDA fold, Punjab’s SAD, is suffering from considerable anti-incumbency, and there too the writing is on the wall.

But for Congress to reinvent enough to position itself to come back to power under Rahul Gandhi seems a near impossible task. This is not just because Mr. Gandhi lacks vision, charisma and leadership, but because the Congress has rendered itself irrelevant to the desires and dreams of the people today. It will take much more than biological youth to turn the tide.

When fortyish Rahul Gandhi, challenges Modi, in his sixties, it is Modi and his  developmental vision that resonates with the public. Rahul Gandhi must reinvent much more substantially, because his faltering and woolly championing of the ‘poor’, between relief bouts of luxe holidays abroad, is not going to cut the mustard.

 (799 words)

October 13^th, 2014
Gautam Mukherjee

Implementation Deficit-The Achilles' Heel

 

Implementation Deficit

 On the streets of Mumbai, there is no discernible ‘wave’ even now, mere days before the Maharashtra State Assembly elections. An analytical cabbie there said to me that the city has been run lately and for some years by a pact between the Congress-NCP State Government and the Shiv Sena controlled Municipality. It is live and let live, or else; and this has become an acceptable formula to both sides.

The public mood may be against this faustian pact, he continued, but what has really changed now?  What will be the impact of the ‘Modi difference’ in the absence of a ‘leher’, and how will it be judged, if there is no choice but to go in for a contentious post poll-coalition, muses he?  

In this election season, post the momentous breaks in the Congress-NCP alliance and that of the BJP-Shiv Sena, there are rumours and counter-rumours being floated every day, presumably to seek tactical advantage. The waters are being deliberately muddied to show each one in a bad light, but  it appears to  be only confusing, confounding and turning- off the voting public.

One credible pre-poll survey however,  gives a majority to the BJP and its allies with 154 out of 288 seats and the lion’s share, over 35%, of the popular vote as well. The Shiv Sena comes a distant second with 47 seats. The Congress and the NCP do very badly. But the same poll indicates, somewhat improbably, that the most popular candidate for Chief Minister is Uddhav Thackeray. My cabbie’s take may be a powerful insight  after all.

 Meanwhile former Chief Economic Advisor to the Government at the Finance Ministry, Shankar Acharya, pertinently asks where is the imprint of Modi’s ministerial team, several months into the new administration?  Still, Arun Jaitley is back at work and has dealt with the Pakistani ceasefire violations in robust fashion, but nothing is happening yet on finance ministry authored reform.

Elsewhere, international investment mogul Jim Rogers bluntly says Modi has not done very much on the ground, even though his economic  PR  has been excellent. OECD however says the economic momentum is likely to pick up.  But Sonia Gandhi, despite the humiliating defeat of the Congress in the general election, has made bold to call NaMo an empty braggart.

Governor Raghuram Rajan at the RBI has been given carte blanche to control CPI inflation, but the RBI only oversees monetary policy, and how will this dovetail with the vital need to grow the economy, and the persistent demand from business and industry to lower interest costs? 

So far, the gains to the economy, and the RBI, have come mainly by default, from much lower global petroleum prices, and a fairly decent monsoon after all. But even if it sees us through to the World Bank projected 6.4% in GDP for 2015, it will have done so without a single big or small structural reform implemented to date.  This suggests we could do much better if we get a move on.

Prime Minister Narendra Modi, on his part, is still revelling in the $100 billion he has drummed up  during his foreign visits in September. This money is waiting to enter India, by way of FDI. And while this is commendable, it is unlikely to actually arrive without the Modi Government making ready at home. Why then is Modi taking so long to make major reform announcements?  Is he being hemmed in by bureaucratic resistance?  Are his ministers waiting on him for a nod? Is the research taking too long? Who is his implementation czar on economic reform? Is he, as prime minister, spreading himself too thin? Nobody seems to know; while the rumour mill continues to work full-time.  But it is certain that the shadows of this implementation deficit are lengthening by the day, and doing great harm to the Government’s image.  

Yes, 33 licences to the private sector in the defence production area, long pending under the UPA, have just been approved. Other applicants offering to manufacture less complicated gear have been told they don’t even need licenses to begin now. But it is tax breaks, the GST, reformed company and  labour laws, etc.  that will have to come alongside to get these and other foreign collaborations/joint ventures  off the ground.  

Similarly, there is land acquisition to be expedited for the modernisation of the Indian Railways, another thrust area, and the progression of our much delayed highway networks.  Green clearances have been expedited  by Minister Javdekar for  many stuck projects, but there seem to still be impediments  of financing, as well as more clearances pending.

A bold and sweeping momentum then, needs to take hold in the Government, so that multiple structural issues  can be dealt with simultaneously. This is urgent, and must come about, before the gap between intent and execution becomes the Achilles' heel of a very promising  Government.  

   (812 words)

October 9^th, 2014
Gautam Mukherjee

The Coming Of The Red Carpet

 

The Coming Of The Red Carpet

 Prime Minister Narendra Modi’s highly  successful visit  to America is now being crowned with indications that $ 41 billion in FDI may come in from that country over the next three years. And that this is only some 20% of the expected inflows from the US over a longer term.

The focus therefore, after similar pledges clocked up from Japan and China, must shift to the implementation of a ‘red carpet, not red tape’ regime at the earliest. The stagnant nuclear power cooperation with the US is  also poised to move forward.

The India development juggernaut can get off to an excellent start, with nearly $100 billion slated to come in from all three countries by 2017. The first part of Modi’s strategy, of drumming up investment interest from abroad, is now  definitely looking impressive.
While the world, encouraged by the policy initiatives already taken, the uptick of over a percentage point in GDP, is willing to give the Modi Government some more time to set the stage, there is much work to be done.  

Freer Labour Laws, expeditious land acquisition, provision of utilities, reduction of taxation, connectivity, automation, efficient processing of proposals/permissions, are just some of the things that must change. Only this will see the massive foreign and domestic investment flows towards turning India into a dynamic manufacturing hub.

But the first signs of real and substantive big-ticket  reform  needs to be seen in the coming 90 days. Without setting such a scorching pace, otherwise second nature to the prime minister in matters economic and administrative, this surge of international goodwill is in danger of being wasted.

The concern that Modi won’t deliver on his promises for any reason is probably misplaced, as the Government is set to deregulate diesel, for example, soon after the model code of conduct, in place for the Maharashtra and Haryana elections, lapses later this month. This will save thousands of crores in subsidies going forward, even as a lower fuel import bill calms inflation and aids the burgeoning current account/fiscal deficits.

Analysts have begun to say that the Modi Government has already laid a basis for GDP growth to surge towards 7-8 % in the coming years, up from the near 6% projected for this fiscal.

And more and more observers are allowing that the Modi dispensation is likely to endure for two terms in office, or till 2024. This implies the BJP Government will be able to substantially implement Modi’s vision for India.  And since this vision is so wide-ranging, the nation, and its place in the world, could well be very much changed, for the better, in the coming years.

But concerns  about the quality of governance the Modi Government will be able to deliver, given the massive bureaucratic and political inertia and corruption of the decade past, still remain. It is not that the Modi Government is expected to slide, but the ‘system’ itself, used to a less responsive style, may throw up its own voluntary and involuntary resistances.

Yet, most people view Narendra Modi as a determined and transformative figure, not afraid of doing things differently and taking a risk over it. And his track record as Chief Minister of Gujarat certainly inspires confidence. This is not a politician who does not know how to exercise power and  deliver administrative efficiency.

Meanwhile, the Union Council of Ministers is also likely to be added to shortly. It will probably induct at least one  young and well-qualified ‘economy’ resource,  namely Jayant Sinha, son of veteran BJP leader Yashwant Sinha, a retired IAS man and former Finance Minister himself.

While the Congress  harps on this Government’s attitude towards the minorities, the number of Bohra businessmen who turned up at Madison Square Garden in New York, as well as the Muslims and Christian tribals of Gujarat who vote for Modi, paint a very different and reassuring picture. The devastated Opposition also routinely questions Modi’s ability to implement his plans, and suggests he is promising much more than he can deliver.

Narendra Modi is aware of all the skepticism. He points out however that the NDA Government  has already done more in its  four and a half months in power, than the UPA accomplished in 10 years. 

It will strengthen Modi’s arm significantly if the State Assembly elections on the 15^th of October find in favour of the BJP, rather than return a ‘hung’ verdict in the multi-cornered contest, as the opinion polls seem to be suggesting.

This, more so, because Modi finds himself, once again, as the chief campaigner for his party in both states. If the BJP does well, and actually wins, it will be seen, once again, as his personal victory. It will eliminate the blot of the lost byelections, and increase The BJP’s legislative strength in parliament.

  (798 words)

October 5^th, 2014
Gautam Mukherjee