Perfidy In The Name Of The Common Man

Perfidy In The Name Of The Common Man

India may be a country that has suffered a disgraceful 2% GDP growth and 20% retail inflation per annum for nearly four decades. This self-inflicted economic violence was perpetrated using misguided copycat Soviet style policies. These led us, undeniably, into a miasma of economic under-achievement, with a few bright spots like the green and white revolutions and food sufficiency.

India only started to open up to other possibilities, the capitalist path diluted to Indian political sensibilities,  more mechanisation, computerisation, taking inspiration from America, not the USSR, in the second half of eighties. It promptly unleashed a near double-digit rate of growth. But the damage to the Indian psyche was profound, deep rooted, and had already been done.

Forty years of regarding oneself as poor would tend to cripple anyone mentally! Today, it appears, we, even amongst the seven hundred plus elected or nominated representatives to the two houses of parliament, cannot conceive of this nation, a collective of over a billion and a quarter souls, being anything other than forever poor. Indians, perverse as they have become, can live easily with being individually rich,  just as long as they stay collectively poor.

Is this povertarianism of the psyche reversible? Perhaps, but it is difficult to be sanguine about it. There are bound to be relapses into socialist dogma because it has been the default programme for so very long.

A Congress Party talking head, oddly enough, one Mr. Shergill, given that Rahul Gandhi brags about being more Left than the Left, recently said on TV that ‘In India, good economics is bad politics’.

By implication, Shergill was saying, not without irony, that shouting rhetoric at the TV cameras about the common man and the farmer was, ‘as above, so below, the whole of the law’.

It matters little how it becomes a povertarian obscenity of beggar-thy-neighbour negativity; because it purportedly wins votes, and nobody supposedly cares about results beyond that. For a socialist ethic, it holds the actual, real, living breathing people, and their future outcomes, in a great deal of contempt. But, it is a little like sleep walking- unremembered and unawares.

So, if there is a halt to new industry because of labour or land difficulties, or if everyone continues to pay more indirect taxes because a GST law can’t be passed, so what?

A national railway system that is in dire need of upgrading is stymied by its trade unions resisting all reform, aided and abetted by the railway employees themselves, and, astoundingly, even its well-informed board of directors. And again, so what, scream the embedded socialists, we are looking out for the people, not the capitalists!

The national carrier, Air India, over staffed, under equipped, inefficient, has been making whopping losses. The power generation, transmission and distribution system is losing money hand-over-fist, threatening to sink the banks that fund them, while providing unaffordable, expensive, electricity. Yes, but who cares, when a subsidy financed by deficits can take care of things?  

The armed forces have no state-of-the-art weapons to defend the country with, because orders have not been placed, and neither are they manufactured in the country. So who needs locally made defence equipment in collaboration with international greats, when millions in foreign purchase kickbacks can swell our common man loving coffers? Why break with the most lucrative mercantile traditions of the past?

Elected representatives and senior bureaucrats keep voting themselves more pay, perks, and subsidies, while refusing to do any constructive work, but who can check them in the anarchic, leftist scheme of things?

And if a Speaker in the Lok Sabha suspends slogan shouting, placard carrying legislators from the Lok Sabha for five days so that some house business can, at last, be conducted, it is called undemocratic by the miscreants themselves!

The big question being put to the test with parts of the opposition going for broke, or hysteria, whichever comes first, is, does the lure of socialism really work anymore in India?

These people know the tide may be turning irrevocably the other way, with the public demanding results instead. Many do not like the  daily tamasha in parliament. The decisive election of Narendra Modi, even though some of his lustre has worn off, is a manifestation of this yearning for self- propelled growth. The public is stirring into self-respect. It is perhaps fed up of demeaning charity in lieu of development.

The ideal gentle and decent common man, despite his many would be champions, has been created by ace cartoonist, the late RK Laxman. The version put out by a procession of hypocritical netas  is a chimera; but many have prospered and fattened in his name.  

The ‘principal opposition’ may have decided, in the face of the severest challenge to its very existence, that it must assume extreme positions.  And so, there are shades of the fiery anarchy echoing  Lohia, JP Narayan, George Fernandes, Mamata Banerjee - all in their flood. Curiously, there is very little of the gentle determination and accommodation of MKGandhi. Not even once did the mattresses and the fasting Anna Hazare style come to the fore.  

One thing is clear though- if the socialist emotion being drummed up so very stridently wins out, then we can kiss goodbye to the growth trajectory. The threat is real enough, because plumping for growth and options is unfamiliar territory for Indians.

Fortunately for the forces of change, most of the population, a fulsome 65% are between the ages of 15 and 35, and do not carry much baggage. Still, the lure of the freebie is always compelling, and cannot be underestimated. And the young get frustrated easily if their aspirations are not met.  

But is this likely? Will it be yesterday once more? There is no doubt a lot of pain in enforcing fiscal discipline, bureaucratic accountability, speed of execution, growing the GDP for real, instead of profligate welfare spending on the never-never, to the exclusion of efforts, or means, to pay for it.

All over the world the capitalist economies are indeed in turmoil, after a long spell of spectacular, debt-fuelled growth. The socialists and communists may have failed in their dogmas, but capitalism is also badly bruised. It needs to balance out its excesses, and also the fact that it seems to enrich a miniscule minority much beyond reasonable multiples.

India has been no different. It has leap-frogged over its earlier possibilities since 1991, despite its many Nehruvian hesitations and codicils. But, somehow, the second stage of confidence and conviction has not come, even after 24 years.

Even now, a large proportion of the articulate and expressive are hostile to big business, wealth, unbridled growth that does not have a guaranteed omnibus compartment where the masses can be accommodated, a fondness for the inefficiencies that serve vested interests, and so on.

We want to keep our socialism, but somehow grow individually rich at the same time. For the everyman version, it is par for the course for Norway or Kuwait with tiny populations and much wealth. But how feasible is it for a resourceful nation but with 1.27 billion people going on 1.50 billion? It can be done of course. If we have been able to feed ourselves with huge surpluses we can raise every person’s living standards too.

But something of an idea far more massive than an equitable distribution of  poverty is called for. That was wrong even when we were less than 400 million strong, in 1947. But now, just printing notes to cynically give away money for votes in the name of subsidy and welfare cannot work. We have to develop  a voracious appetite for growth instead. This seems impossible with socialism sleeping insouciantly in the same bed. 

Welfare does have its place, but cannot define the narrative. To get where we must go we have to build the economy to $ 5 trillion, and then more.   

For: Swarajyamag

(1,312 words)

August 6^th, 2015

Gautam Mukherjee

Land: Too Cheap, Too Dear, Too Hot To Handle!

Land: Too Cheap, Too Dear, Too Hot To Handle!

Land acquisition from 1947 to 2013, operated under the colonial 1894 Land Acquisition Act. Combined with ‘land use’ legislation, also inherited from the British, the political-bureaucratic nexus is omnipotent. The 1894 law, with its overwhelming discretionary powers, was most serviceable for the State, as well for those it wished to favour.

This old law was only thrown over, via a radical act of parliament in the dying days of UPA rule, in 2013. And this, after elaborate debate and broad bipartisan support, most notably from the BJP, albeit under different leadership, that wanted to go even further with it!  

The new Act’s content went to the other extreme. It feather-bedded the land owner/farmer with elaborate consent clauses, and pumped up the compensation clauses to what many say are unrealistic levels.

Of course, how much is eventually paid out, despite the enshrinement of double the market rate in near urban areas, and four times that in rural regions, and how, will depend on the interpretation of the fine print.

But, notwithstanding the process, many interested parties have been wondering, how the government and private industry propose to finance land acquisition? What will bloated acquisition costs do to the viability of envisaged projects? Alternatively, how realistic is it to partner with landowners and farmers unconnected with the businesses, industry, housing, offices, or the infrastructure being built on their land?

When the pro-development majority government of Narendra Modi came to power in 2014, it immediately set about removing the excessive empowerment of the 2013 Act, without however disturbing the original compensation clauses.

But the initiative ran into stiff opposition, both from within the supporting organisations and cadres of the BJP/RSS, and NDA constituents such as the Shiv Sena and Akali Dal, plus large sections of the Opposition. The proposed dilutions of the consent clauses of the 2013 Act were dubbed ‘anti-farmer’, and began to gain more than a little political traction, portraying the government as ‘pro-big business’.

The government initially took a muscular stance, and promulgated the changes as an ordinance, and kept renewing it every six months. However, they made little headway with getting the amendments passed in parliament. But tellingly, the ordinance was hardly used by its intended beneficiaries!

Now, 14 months into its tenure, the government has decided to abruptly bow out of the fracas, thereby stealing the Opposition’s thunder. It will now accept the joint parliamentary committee’s report coming on August 7^th and leave it to the individual states to modify the 2013 Act to suit. The tactical retreat, is also thought to be good for the cause of cooperative, and competitive, federalism, that Modi seeks to promote. The BJP states, however, are expected to use it well.

Government compensation for land acquisition, in any case, has not worked very well. It has led to farmer agitations in Noida and Singur in recent memory. In Haryana, under former Congress chief minister Hooda ,while  the pay-out was marginally more than others, it came in dribbles and drabbles. Interest was computed on outstanding amounts, and developed plots in lieu of acreage taken over, were to be allotted; but only as and when the state was able.  

For the private sector, under the 2013 Act, apart from an 80% consent clause, it is an open negotiation with farmers/landowners, and then having to contend with huge additional expenses under ‘land use’ and plan sanctioning laws too.

The present realty sector, languishing for lack of demand, may perk up via this circumstance alone, because new developments could grind to a halt, except on existing land banks!   

The cost of acquisition is the sticking point. So Congress, and its friends, may not have much to crow about after all.  

But seeking private and foreign investment, demands a more welcoming and pragmatic attitude. The Tata-Singur land agitations of 2006-2008 did propel the TMC and Mamata Banerjee into power. But, industry in West Bengal, seven years on, is still a non-starter.

Modi’s  seemingly abject surrender may just win him Bihar, now that he is rendered ‘pro-farmer’ again, even as he goes out to bat calling Congress ‘anti-progress and development’.

For: The Quint

(682 words)

August 5^th, 2015

Gautam Mukherjee

Speculators Come Back, All Is Forgiven!

Speculators Come Back, All is Forgiven!

The Modi government has played the classical Keynesian card by boosting infrastructure investment to stimulate the sluggish economy. This, in the absence of private sector or foreign investment, at least for the moment, and where there is a degree of scepticism on the growth statistics computed so far. This sarkari booster initiative has come about not a moment too soon, and should, alongside the soft oil prices, start showing further growth at the bottom line shortly.

Moribund infrastructure building may be starting up after a long pause, but the state of the residential and commercial construction industry country-wide is truly alarming.

Organisations connected with the broking, management/security/maintenance services provided to this sector,  that nominally accounts for 17% of GDP, such as Magicbricks, Knight Frank, 99 Acres, Cushman Wakefield, etc. have put out very disturbing reports.

They, more or less uniformly state, that thousands of semi-built apartments and millions of square feet of built office and showroom space are going a-begging for customers and are unsold.  This is the case in every metro and large city and its environs, across the length and breadth of the country. The secondary market too is very soft, up and down the spectrum, with serious buyers few and far between. Rental rates also, never more than 2% of capital value for residences, and about 7-9% for commercial area, have stagnated or fallen as well.

And the situation is more acute in newly commissioned sectors on the more distant edges of the cities. This is sometimes due to the absence of promised government infrastructure and connectivity, delayed for years in the implementation.

Sometimes, as in the case of NOIDA, a confusion of retrospective rules have apparently been violated, but this is revealed after the flats have been allowed to come up, and millions in home-buyer money has been invested!

The other huge problem currently is the mass exit and total absence of the speculators that used to keep this sector pumped up. This, even as the largely self-funded and loosely regulated construction sector went on a building boom that has the potential, even on a competitive and private basis, to solve a large proportion of the housing and commercial space shortages in the country.

And all of it was self-generated,  the land banks and construction funded via internal accruals and investor money, in addition to bank, institutional, venture capital and informal sources of finance. This was driven by market forces, and a large dollop of optimism, even ‘exuberance’, most recently from 2008 onwards, when the outer world collapsed!

The speculators, alas, have all exited real estate, ever since the returns began to barely keep up with the inflation rate of an estimated 10%. This came to pass sometime around 2013, when the economy slowed to its lowest ebb, and with their departure, the demand scenario promptly collapsed.

The speculators had to leave because the retail cost of capital is at least 10-13% in the banking industry, and more in the informal banking system, and a return of 10% and under, in sluggish conditions, is a net loss, illiquid, and certainly not worth the candle.

The residential and commercial property market, in other words, cannot survive at much under 20% return on capital per annum. 

Even in a largely end-user market where 80% or more are the ultimate buyers, and the ticket sizes are modest, the rate of return is faltering. This is because it barely keeps pace with  retail inflation at a minimum of  8-10% , even as the most competitive housing and commercial loans, over long tenures, are at rates a tad higher.

And the situation has remained stagnant ever since, though prices have not dropped more than 20% , despite such dismal conditions, because the underlying land prices are persistently high, even as it becomes increasingly difficult to find.

The speculators, ‘financiers/underwriters,’ considered the life-blood of the ‘ construction industry,’ have no choice but to sit tight on their money, living the ‘cash is king’ principle for uncertain times. Or, yes, they are making cautious forays into the stock market.

At least on the bourses, with talk of a ‘long term secular bull market’ doing the rounds, prospects of earning the 20% or more per annum they need to, levels which give them a real return on their capital, are much more likely in the near term. This will most probably result in speculative profits eventually, some of which are traditionally, and will be once more, channelled back to real estate. This is the outlook for some time in the future though, in the cyclic fashion that features in every boom and bust.

The worry is, however, that company earnings are not picking up, and the Modi government is not able to implement its development agenda anywhere near fast enough. 

Also, in the interim, the assumption is that the construction industry will receive new lines of credit/rescheduled debts from the banks and lending institutions to finish their half-built projects. Otherwise, there will be a blood-bath of attrition, a great deal of distress selling, and many of the present prominent developers will have to give way to better funded newbies.

These cash rich new players may well buy the half-built assets, leveraged cheap, but will only do so in the expectation of making substantial profits on their investments. The end-user buying community, will not get the 50% slashed prices that they dream of.

The speculators, who are bold enough re-enter the construction market early, will much prefer it if prices rise, because that is how they make money! And a stock market or property market without its speculators, will be hard pressed to survive. It is they who place and pay a premium on the better times to come, without waiting for them to actually arrive.

The entire residential and commercial sector is presently left to the tender mercies of the ‘end-user’, that constitute no more than 15% , on average, of the primary buying community. These worthies, expecting a crash in prices as the crisis deepens, are gleefully seeking ever more unrealistic bargains before committing themselves.  To them, the builders are profiteers, bloated on black money, and unethical, one-sided, contractual arrangements.

The builders, their excesses and sharp practices notwithstanding, are flirting with bankruptcy, and the entire house of cards, here in India, as it is in China, is tottering. This is not going to feel like just desserts at all, when, and if, an implosion comes about; because it will sink a large section of business, industry, banks, and employment alongside.

Combined with the fact that industry, including the populous SME sector, which also accounts for another 17% of GDP, has also been languishing, things are looking grim for 34% of the economy! And this is before counting the rural sector, that houses 60% of the population, including about a fifth of the number actually in farming, and accounts for another, rather paltry, calculated on a per capita basis, 17% again.

Industry is showing drastically reduced profit margins, lower sales/revenues, under-utilisation of capacity, and high debt burdens. It is struggling to service the debt accumulated at high interest rates. Thomson Reuters data cites the example of Hindustan Construction (HCC), which had its stock prices soaring as it was building a bridge to decongest the Mumbai ‘commute’ circa 2008.  Back then, it owed $674 million, ballooned to $1.6 billion in 2014/15, in drastically reduced market conditions.

But what is the government, specifically the RBI and Finance Ministry doing about the high interest rates, the recapitalisation of banks, and renegotiation of all the stressed loans to builders/industry, about to become irretrievable NPAs?  

Amazingly, nothing dramatic certainly, even in the face of an impending avalanche  promising financial ruination for a very large section of the economy.

The RBI has reduced interest rates by 0.75% to 7.25% this fiscal, but is reluctant to move faster. This despite the fact, as Reuters points out, that ‘wholesale inflation has declined for eight consecutive months,.. and consumer inflation is within the RBI’s target of 2-6%’.

Business confidence in the future is actually plummeting. A recent ASSOCHAM survey, looking back at the April-June 2015 period, with a projection to the July –September quarter, has only 54.8% of the respondents ‘hopeful of improving economic conditions in the coming months,’ down from over 80% a year ago.

The US also toyed with the idea of ‘moral hazard’ which sees retribution for financial excesses as just retribution, before wisely going in for the biggest quantitative easing programme (QE) in history. This because they wanted to avoid another Great Depression far worse than the one seen in the 1930s.

It doled out 85 billion dollars per month for years together at practically zero per cent interest, in order to revive its fortunes. And while the US is much better, it is still not out of the woods.

India has a choice in front of it now, before the situation in three vital sectors of the economy, at least, falls into the abyss. But the window of opportunity is not going to stay open indefinitely.

For: Swarajyamag

(1,508 words)

August 3^rd, 2015

Gautam Mukherjee