The Paradox of Thrift
In recessionary times, the natural inclination of every individual is to cut back on unnecessary expenses, pay back debt, postpone non-essential purchasing. This seems like virtuous belt-tightening, but if enough people join this particular bandwagon, the economy as a whole begins to tank. John Maynard Keynes called this phenomenon, “the paradox of thrift”. That is why George W Bush advised people to do their patriotic duty after 9/11 and told them to go out and shop!
But what is afoot in India is not the consequence of domestic thrift leading to a significant slow-down, but a mugging of growth owing to a national economic bungling on the grand scale.
Our economic deceleration is because of a wilful miscalculation on the part of the UPA Government. And it may never have come to light, except for the global economy collapsing. As Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked”.
But since there is never a cloud without a silver lining, what we are now witnessing is a scramble to reverse gear and cut every conceivable interest rate and cautionary reserve in sight, in a bid to resuscitate a faltering economy.
What is even better for India Inc. and the Indian public is that both the UPA and the Opposition NDA are in competition to devise ways and means to revive growth. But before we go to the presumed glories of the future, let’s take a look at how we came to be at this pass.
Flying in the face of all sage advice and commentary barely a year ago, Finance Minister P Chidambaram and former Reserve Bank of India Governor YV Reddy, relentlessly tightened interest rates, raised cash reserve ratios, put curbs on participatory notes, raised statutory liquidity ratios, reduced rates on NRI deposits, curbed external commercial borrowing, intervened in the currency markets to weaken the rupee, and did all else in their power to suck out liquidity, strangle growth, and barricade India against dollar inflows.
In their wisdom, the UPA wanted a weaker rupee to ostensibly aid exports, even though we have a huge infrastructure led and modernisation-based import bill, not to mention a 70 per cent dependency on oil imports. Side by side, the UPA was also announcing large expenditures such as the farm loan waiver, and other largesse aimed at targeted voters in rural India. The Government was also subsidising the rocketing petroleum prices, not with a hit on the current year’s budgetary books, but with sleight-of-hand Oil Bonds, to be paid for by future generations.
All these policies collectively resulted in growth strangulation, juxtaposed with sharply raised expenditure, leading to vast increases in current account and fiscal deficits, stoking the very inflation the government was trying to curb! When they wrote “Pop goes the Weasel” in the 17th century, they must have had personages like the current UPA money-managers in mind.
The irony is this fixing-things-that-weren’t-broken policy, was unleashed, when we were thriving. Business and Industry were reporting good results. The stock market was booming. India Inc. was busy going international with mergers and acquisitions, and even agriculture was doing far better than the year before. The Indian economy, as a whole was growing at a projected 9 per cent for fiscal 2008.
Growth decompression, said the government, affects only India Inc. And our inflation, they said, was due to runaway, speculative demand in the domestic economy; whereas it was mostly the sharply spiking price of oil, over which, India, doing nothing to curb its demand, had no control.
Oil prices have now halved, thanks to the global financial meltdown and subsequent fall in demand, and ergo, our WPI inflation rates have been tending downwards over the last five weeks.
But by now, our GDP growth estimates are at 7 per cent for 2008. We have a recession in the Real Estate segment. There are grave threats of consumer defaults on home, car, and credit card loans/debt.
Business and Industry too are forced to borrow at 14 per cent and above, if they manage to borrow at all, particularly in the medium to small sectors, impacting their margins, and forcing the postponement of modernisation and expansion.
Infrastructure projects, always grappling with the twin problems of long execution and payback periods, have been unable to raise money in the distressed global markets, and can’t get any money from the tight local credit markets either. They are all at a standstill. And, let us realise, when it comes to infrastructure, this impacts not just fiscal 2008 or ‘09 or ’10, but casts a shadow on projected GDP growth well into the future!
The BJP economic think tank, comprised of former finance ministers Jaswant Singh and Yashwant Sinha and former disinvestment minister Arun Shourie, have called for a raft of urgent measures, some old, some new, to get things going. They want drastic action, beyond the stage-by-stage 250 points CRR cuts and somewhat tentative 100 bps Repo rate cut, announced by the Government so far.
The BJP has called for Repo interest rates to be cut by a further 200 basis points to a much healthier 6 per cent by March 2009. And by way of a brand new suggestion, they have called for a strengthening of our public sector banks with a USD 10 billion rights issue to augment their USD 40 billion footprint collectively. This is intended to boost their lending power to domestic business and industry.
The BJP has also aired some protectionist ideas, such as a banning of short-selling and PN notes with regard to the stock market, and accounting calls to acknowledge off-budget debt on the books. The BJP also wants a Sovereign Wealth Fund created with our foreign exchange reserves and the money put to fund our infrastructure development, instead of languishing in US Treasury Bonds.
In any event, the two major political groupings seem to be pointing in the same direction for once, coming down once again in favour of growth. But, no one has a magic wand, and all need to bear in mind that monetary measures always work their effects after a time lag.
So perhaps, the next time around, no Indian Government will be so casual about killing the golden goose of growth, and eschew their periodic urge to bite the very hand that feeds.
(1,053 words)
October 21st, 2008
Gautam Mukherjee
Published in The Pioneer on Wednesday,October 22,2008 as "The wages of misplaced thrift" and online at www.dailypioneer.com. Also see it archived under "Columnists" at www.dailypioneer.com
Tuesday, October 21, 2008
Monday, October 20, 2008
Game Changers
Game Changers
Portnoy’s Complaint author Philip Roth once said, “memories of the past are not memories of facts, but memories of your imaginings of the facts”. That is why no two people quite agree on an eye-witness account.
And, that, at best, is how the world goes forward, believing in facsimiles and fantasies, because it is the belief itself, and not the factual about it, that makes everything real.
Then again, maybe it is a fusion of fact and fantasy that makes for the United States going into their presidential election on November 4th. We can clearly see a charismatic front-runner candidate, all but elected, except for the notorious “Bradley Effect” or because of an Act of God.
The Bradley Effect is named after long-term Black Los Angeles Mayor Tom Bradley. It alludes to White voters who ultimately do not vote for a Black candidate, even though they say they will.
But Barack Obama, even if he is denied the presidency, has already made history. He is the first African-American presidential candidate. He is also the most successful US presidential fundraiser; with the best primary season organisation of all time.
Obama is an eloquent visionary and change agent. And he is resolutely inclusive at the same time. There are echoes of an uncanny amalgam about him. We can hear reverberations of the messianic “I have a dream” persona of Martin Luther King Jr. speaking at the Lincoln Memorial in 1963. And also, we hear a voice from another time, that flat Boston-accented Harvard privilege shining through. We can hear the “idealistic realism,” of an “ask not what your country can do for you…” John Fitzgerald Kennedy.
With Philip Roth to guide us, we can see JFK morphing into Obama, a similar poetry inspiring our souls afresh, during another cold 20th January 2009 Washington inauguration.
Having said this, there is, of course, no nostalgic recourse, no place, or time, or indeed, patience, in 2008, to replay the Sixties.
But still, a mantle, skipping backwards some 45 years, ignoring the Clinton and Carter years in between, clearly has been passed on to a man who walks and talks legacy. Perhaps this is because Obama talks change also, using his merit and hard earned privilege to promise a return to governance for the people and not just the rich.
Barack Obama walks purposefully, with the spring of youth in his step, like a man on his way to redeem a very Nehruvian pledge. A redemption that is, yes, also faintly Socialist, but in America today, that means Centrist. It is a Centrism that will also come, ironically, after being preceded, in the last days of George W Bush’s Republican administration, with nationalisations and bail-outs that no Left Wing government could have faulted.
But Obama’s mission as a Black man will be to redeem a pledge, made not just by King and JFK as they gave wings to the Civil Rights Movement. It is also to fulfil the dream of Abraham Lincoln, and the blood of thousands who died in the American Civil War.
Barack Obama is a “transformational figure” on his way to deliver on a promise that will ignite a Future calling out to be advanced, if not perfected. It is a Future of a young nation reaching maturity. If he succeeds, Obama will not only transform the face of America, but that of its friends and enemies, in sum, the potential and destiny of a much globalised world grown “small”.
And for us, in India, never given an inch by any Democrat President since JFK, it is nevertheless time to applaud the success of a man that will be good for America, healing its rifts, and putting it back on its economic feet. Because only then, it is plain to see, can the rest of us, in turn, realise our own hopes and dreams.
We should understand all the more because India too is crying out for a Game Changer. The old, oft trotted out rhetoric of a faked secularism has played out its course. It is now riddled with contradictions, corroded by anger, and shamed by betrayal.
But the rescue does not lie in a hundred regional aspirations contending in a morass of chaos, or the pornographic feeding upon “minority grievance”. Or, even, on the spewings of Liberal intellectuals that delight in sedition in the name of equity and justice.
And, as is often the case, the solution is here and in plain sight. But, in an evolutionary context, it will have to play out; in not One, but Two Acts; just as it did in America between the Sixties Civil Rights movement and today.
Our First Act is already over a decade old, and featured a pioneering Mr.LK Advani who exposed the face of “pseudo-secularism” with his Ram Rath Yatra and its aftermath. He catapulted his party to power, putting the nuts and bolts numbers at the disposal of his friend and senior, Shri Atal Bihari Vajpayee.
It needs to be said, now, before the dust of electoral battle obscures such markers, that it was mainly the vision of Shri Lal Krishna Advani which dragged the Indian Right, kicking and screaming in embarrassment, owing to a kind of Bradley Effect of our own, outing us, from the margins of history to which we had been relegated. It was Advani who established, and gave respectability to, the Saffron Flag and the Lotus symbol in the national consciousness.
Perhaps Mr. Advani’s time has finally come and he will be rewarded with his own turn to lead this country, fed up, as it is, with a lax security regime. But, while poor security, and our stalled, unnecessarily bound and gagged economic growth, may well place the NDA in power again, the true historical significance of Mr. Advani’s long innings in national politics goes much deeper.
Mr. Advani has been instrumental in reinstating Hindutva, and the unapologetically militarist and free-market legacies, of great men, nearly forgotten, like Shri Syama Prasad Mookerjee, Shri C Rajagopalachari, and the greatly neglected, even maligned, Shri Subhash Chandra Bose.
But the Second Act is clearly yet to come. Mr. Advani’s natural successor in spirit Narendra Modi, is not prime minister yet. But he is already a third term chief minister. He is phenomenally successful and undeniably runs the most business-friendly administration of any state of the Indian Union. He is tough on terrorism and committed to promoting prosperity. Is this then the correct template for India going forward? And even if it is, do we need some more time, and alas, more blood on the streets, to admit it to ourselves first?
We will, of course, see for ourselves when Act Two actually opens. Meanwhile, it is enough to realise what makes for a Game Changer. It is certainly more than mere leadership. It is something grander, something epochal, and needs some people to pave the way; and yet others to stand aside.
(1,050 words)
October 20th 2008
Gautam Mukherjee
Published in The Pioneer on November 1, 2008 as "India needs a game changer" and online at www.dailypioneer.com and archived there under "columnists".
Portnoy’s Complaint author Philip Roth once said, “memories of the past are not memories of facts, but memories of your imaginings of the facts”. That is why no two people quite agree on an eye-witness account.
And, that, at best, is how the world goes forward, believing in facsimiles and fantasies, because it is the belief itself, and not the factual about it, that makes everything real.
Then again, maybe it is a fusion of fact and fantasy that makes for the United States going into their presidential election on November 4th. We can clearly see a charismatic front-runner candidate, all but elected, except for the notorious “Bradley Effect” or because of an Act of God.
The Bradley Effect is named after long-term Black Los Angeles Mayor Tom Bradley. It alludes to White voters who ultimately do not vote for a Black candidate, even though they say they will.
But Barack Obama, even if he is denied the presidency, has already made history. He is the first African-American presidential candidate. He is also the most successful US presidential fundraiser; with the best primary season organisation of all time.
Obama is an eloquent visionary and change agent. And he is resolutely inclusive at the same time. There are echoes of an uncanny amalgam about him. We can hear reverberations of the messianic “I have a dream” persona of Martin Luther King Jr. speaking at the Lincoln Memorial in 1963. And also, we hear a voice from another time, that flat Boston-accented Harvard privilege shining through. We can hear the “idealistic realism,” of an “ask not what your country can do for you…” John Fitzgerald Kennedy.
With Philip Roth to guide us, we can see JFK morphing into Obama, a similar poetry inspiring our souls afresh, during another cold 20th January 2009 Washington inauguration.
Having said this, there is, of course, no nostalgic recourse, no place, or time, or indeed, patience, in 2008, to replay the Sixties.
But still, a mantle, skipping backwards some 45 years, ignoring the Clinton and Carter years in between, clearly has been passed on to a man who walks and talks legacy. Perhaps this is because Obama talks change also, using his merit and hard earned privilege to promise a return to governance for the people and not just the rich.
Barack Obama walks purposefully, with the spring of youth in his step, like a man on his way to redeem a very Nehruvian pledge. A redemption that is, yes, also faintly Socialist, but in America today, that means Centrist. It is a Centrism that will also come, ironically, after being preceded, in the last days of George W Bush’s Republican administration, with nationalisations and bail-outs that no Left Wing government could have faulted.
But Obama’s mission as a Black man will be to redeem a pledge, made not just by King and JFK as they gave wings to the Civil Rights Movement. It is also to fulfil the dream of Abraham Lincoln, and the blood of thousands who died in the American Civil War.
Barack Obama is a “transformational figure” on his way to deliver on a promise that will ignite a Future calling out to be advanced, if not perfected. It is a Future of a young nation reaching maturity. If he succeeds, Obama will not only transform the face of America, but that of its friends and enemies, in sum, the potential and destiny of a much globalised world grown “small”.
And for us, in India, never given an inch by any Democrat President since JFK, it is nevertheless time to applaud the success of a man that will be good for America, healing its rifts, and putting it back on its economic feet. Because only then, it is plain to see, can the rest of us, in turn, realise our own hopes and dreams.
We should understand all the more because India too is crying out for a Game Changer. The old, oft trotted out rhetoric of a faked secularism has played out its course. It is now riddled with contradictions, corroded by anger, and shamed by betrayal.
But the rescue does not lie in a hundred regional aspirations contending in a morass of chaos, or the pornographic feeding upon “minority grievance”. Or, even, on the spewings of Liberal intellectuals that delight in sedition in the name of equity and justice.
And, as is often the case, the solution is here and in plain sight. But, in an evolutionary context, it will have to play out; in not One, but Two Acts; just as it did in America between the Sixties Civil Rights movement and today.
Our First Act is already over a decade old, and featured a pioneering Mr.LK Advani who exposed the face of “pseudo-secularism” with his Ram Rath Yatra and its aftermath. He catapulted his party to power, putting the nuts and bolts numbers at the disposal of his friend and senior, Shri Atal Bihari Vajpayee.
It needs to be said, now, before the dust of electoral battle obscures such markers, that it was mainly the vision of Shri Lal Krishna Advani which dragged the Indian Right, kicking and screaming in embarrassment, owing to a kind of Bradley Effect of our own, outing us, from the margins of history to which we had been relegated. It was Advani who established, and gave respectability to, the Saffron Flag and the Lotus symbol in the national consciousness.
Perhaps Mr. Advani’s time has finally come and he will be rewarded with his own turn to lead this country, fed up, as it is, with a lax security regime. But, while poor security, and our stalled, unnecessarily bound and gagged economic growth, may well place the NDA in power again, the true historical significance of Mr. Advani’s long innings in national politics goes much deeper.
Mr. Advani has been instrumental in reinstating Hindutva, and the unapologetically militarist and free-market legacies, of great men, nearly forgotten, like Shri Syama Prasad Mookerjee, Shri C Rajagopalachari, and the greatly neglected, even maligned, Shri Subhash Chandra Bose.
But the Second Act is clearly yet to come. Mr. Advani’s natural successor in spirit Narendra Modi, is not prime minister yet. But he is already a third term chief minister. He is phenomenally successful and undeniably runs the most business-friendly administration of any state of the Indian Union. He is tough on terrorism and committed to promoting prosperity. Is this then the correct template for India going forward? And even if it is, do we need some more time, and alas, more blood on the streets, to admit it to ourselves first?
We will, of course, see for ourselves when Act Two actually opens. Meanwhile, it is enough to realise what makes for a Game Changer. It is certainly more than mere leadership. It is something grander, something epochal, and needs some people to pave the way; and yet others to stand aside.
(1,050 words)
October 20th 2008
Gautam Mukherjee
Published in The Pioneer on November 1, 2008 as "India needs a game changer" and online at www.dailypioneer.com and archived there under "columnists".
Friday, October 10, 2008
Wet Wet Wet: With Barbarians At The Gate
Wet Wet Wet: With Barbarians At The Gate
Tough leaders in democracies use pejoratives when they are frustrated. These are vaguely derogatory, depend on tone to deliver their bite, and not outright swear words. And they target, not just the Opposition, because, after all, it is their duty to oppose; but also fellow party members, colleagues in government, advisers, hangers-on, and allies, particularly in coalitions. In short, anybody, or in reference to anyone, who has the temerity to feel uncomfortable when firm steps are taken to deal with situations. Firm steps that carry risks, electoral risks!
In the long ago eighties, Dame “Iron Lady” Thatcher, a good friend of our own “Indira is India,” used to call a wide range of people, in her own party, elsewhere, in her household, even certain less than forthcoming domestic pets, “wet” and whole collectives: “wets”.
This curious and panic inducing description, particularly in a country given to near incessant rainfall; was liberally used by the grand dame in public and private, in personal audiences with Queen Elizabeth II, and even in parliament. So much so, that it inspired a very popular and melodious British Pop Group of the time, to call themselves wet too, not once, but three times, as in, “Wet Wet Wet”.
Nearer home and present times, it is sometimes the Opposition that does the describing, calling incumbent prime ministers “weak” and “weakest” ; but probably feels a little foolish when the “weak” manage to get their own way in the end.
But not all elected leaders are quite so decorous. President Nixon liberally used expletives to describe a wide range of his contemporaries and situations. He also recorded his performances for posterity, so that all the world could admire his fluency. He was a Mormon, but also a consummate foul-mouth, who probably wanted to be portrayed by history warts and all. And, not surprisingly, that is how we remember the Republican president who delivered the body blow to the “Iron Curtain” with his bold tilt towards China.
Dictators, kings, chieftains, rulers, billionaires, and paupers, for that matter, are often coarse; but they don’t even have to brush their teeth, like Chairman Mao, if they don’t want to; let alone win elections.
But tough, attitudinal leaders in democracies, without benefit of absolute power, do sometimes get a lot done, besides calling people names. And the 1980’s must have been particularly good for tough democratic regimes.
Mrs. Gandhi liberated Bangladesh, to no great lasting benefit, but with undeniable courage, and in defiance of the US. She also crushed the Naxalite movement in West Bengal using the redoubtable Mr. Sidhartha Shankar Ray; all the while calling all sorts of people “elitist” and “anti-poor” herself. The duo used the Emergency, in 1975, to unleash a police and para-military pogrom, to effectively wipe it out.
It was bitter medicine, for a virulent disease, but also resulted, in a political revulsion among Bengalis that saw the end of Congress Party rule in West Bengal; replaced, ever since, for over thirty years, by a ruinous and toxic Communist rule that persists to this day.
But Mrs. Gandhi didn’t let possible political consequences deter her from doing her duty by the country. She did it again, authorising Operation Blue Star in 1984, arguing a terrorist was a terrorist, and a Sikh was a Sikh, and refusing to be confused between the two. She paid for this conviction with her life, but it was a tremendous demonstration of character, and does explain why Indira Gandhi admired Joan of Arc in her often lonely childhood.
Her son, Rajiv Gandhi, as prime minister, put in Mr. SS Ray once again, as Governor, to mop up in Punjab; and also Julio Ribiero and KPS Gill, tough cops both, with a mandate to end the Khalistan movement. This, they most ably did.
Rajiv Gandhi, a soft-spoken gentleman, was moved nevertheless to speak of action that would remind the terrorists, and the Pakistanis who supported them, of their grandmothers: “naani yaad dila denge,”, wagging his finger from the ramparts of the Red Fort, no less.
Mrs. Thatcher, on her part, broke the backs of very powerful Trade Unions, used to domination ever since WWII and pampered by successive Labour Governments. Their version of Socialism wouldn’t have allowed Britain to move into the 20th century, wouldn’t allow closure of industries that were bankrupt, ports without traffic, mines that were spent. It was a difficult path to tread, and Thatcher was expelled from office, eventually, by her own Conservative party, but not before she had brought Britain back from the brink of being a failed state and restoring a little of the once “great”.
Her counterpart in America, Ronald Reagan, called “Reaguns” often enough by disgruntled left-wingers, played a pivotal role in ending the sufferings of Eastern Europe, by finishing what his predecessor Nixon had started.
Reagan ended the Cold War by upping the ante on the USSR with his multi-billion dollar “Star Wars” defense shield, and had no compunctions about calling the Soviet Block “The Evil Empire”. It was Reagan who precipitated the disintegration of the USSR, bankrupting them as they tried to keep up, and forcing the pulling down of the Berlin Wall. Reagan, avuncular and steely at once, was the only one amongst his global contemporaries, who pulled it off without losing any of his popularity.
Today, as we look around us here in India, the epitome of a soft state, bullied by our neighbours, intimidated by multiple pressure groups, reeling day-to-day from the havoc being wrought by Jihadists, Naxalites, “freedom fighters”, communalists of various hue, and other assorted thugs; we might do well to remember Prime Minister Indira Gandhi. Mrs. Gandhi did not play ducks and drakes with India’s internal security.
There was then, as there is now, much public debate, much media critique, motivated, narrow, and sectarian politicians pushing their agendas, equally vociferous civil society caterwauling; and just as many accusations of victimisation and persecution of minorities.
Thomas Sowell, an American writer and economist from the 1930’s wrote: “If the battle for civilization comes down to the wimps versus the barbarians, the barbarians are going to win.”
That there are barbarians at the gate is beyond doubt. We must be busy with our understanding of civilisation, but either way, for our survival, we cannot afford to be wimps.
(1,050 words)
10th October 2008
Gautam Mukherjee
Published in print, The Pioneer, Tuesday, October 14th, 2008, as "Barbarians at the gate" and online at www.dailypioneer.com Also see it archived under "Columnists" at www.dailypioneer.com
Tough leaders in democracies use pejoratives when they are frustrated. These are vaguely derogatory, depend on tone to deliver their bite, and not outright swear words. And they target, not just the Opposition, because, after all, it is their duty to oppose; but also fellow party members, colleagues in government, advisers, hangers-on, and allies, particularly in coalitions. In short, anybody, or in reference to anyone, who has the temerity to feel uncomfortable when firm steps are taken to deal with situations. Firm steps that carry risks, electoral risks!
In the long ago eighties, Dame “Iron Lady” Thatcher, a good friend of our own “Indira is India,” used to call a wide range of people, in her own party, elsewhere, in her household, even certain less than forthcoming domestic pets, “wet” and whole collectives: “wets”.
This curious and panic inducing description, particularly in a country given to near incessant rainfall; was liberally used by the grand dame in public and private, in personal audiences with Queen Elizabeth II, and even in parliament. So much so, that it inspired a very popular and melodious British Pop Group of the time, to call themselves wet too, not once, but three times, as in, “Wet Wet Wet”.
Nearer home and present times, it is sometimes the Opposition that does the describing, calling incumbent prime ministers “weak” and “weakest” ; but probably feels a little foolish when the “weak” manage to get their own way in the end.
But not all elected leaders are quite so decorous. President Nixon liberally used expletives to describe a wide range of his contemporaries and situations. He also recorded his performances for posterity, so that all the world could admire his fluency. He was a Mormon, but also a consummate foul-mouth, who probably wanted to be portrayed by history warts and all. And, not surprisingly, that is how we remember the Republican president who delivered the body blow to the “Iron Curtain” with his bold tilt towards China.
Dictators, kings, chieftains, rulers, billionaires, and paupers, for that matter, are often coarse; but they don’t even have to brush their teeth, like Chairman Mao, if they don’t want to; let alone win elections.
But tough, attitudinal leaders in democracies, without benefit of absolute power, do sometimes get a lot done, besides calling people names. And the 1980’s must have been particularly good for tough democratic regimes.
Mrs. Gandhi liberated Bangladesh, to no great lasting benefit, but with undeniable courage, and in defiance of the US. She also crushed the Naxalite movement in West Bengal using the redoubtable Mr. Sidhartha Shankar Ray; all the while calling all sorts of people “elitist” and “anti-poor” herself. The duo used the Emergency, in 1975, to unleash a police and para-military pogrom, to effectively wipe it out.
It was bitter medicine, for a virulent disease, but also resulted, in a political revulsion among Bengalis that saw the end of Congress Party rule in West Bengal; replaced, ever since, for over thirty years, by a ruinous and toxic Communist rule that persists to this day.
But Mrs. Gandhi didn’t let possible political consequences deter her from doing her duty by the country. She did it again, authorising Operation Blue Star in 1984, arguing a terrorist was a terrorist, and a Sikh was a Sikh, and refusing to be confused between the two. She paid for this conviction with her life, but it was a tremendous demonstration of character, and does explain why Indira Gandhi admired Joan of Arc in her often lonely childhood.
Her son, Rajiv Gandhi, as prime minister, put in Mr. SS Ray once again, as Governor, to mop up in Punjab; and also Julio Ribiero and KPS Gill, tough cops both, with a mandate to end the Khalistan movement. This, they most ably did.
Rajiv Gandhi, a soft-spoken gentleman, was moved nevertheless to speak of action that would remind the terrorists, and the Pakistanis who supported them, of their grandmothers: “naani yaad dila denge,”, wagging his finger from the ramparts of the Red Fort, no less.
Mrs. Thatcher, on her part, broke the backs of very powerful Trade Unions, used to domination ever since WWII and pampered by successive Labour Governments. Their version of Socialism wouldn’t have allowed Britain to move into the 20th century, wouldn’t allow closure of industries that were bankrupt, ports without traffic, mines that were spent. It was a difficult path to tread, and Thatcher was expelled from office, eventually, by her own Conservative party, but not before she had brought Britain back from the brink of being a failed state and restoring a little of the once “great”.
Her counterpart in America, Ronald Reagan, called “Reaguns” often enough by disgruntled left-wingers, played a pivotal role in ending the sufferings of Eastern Europe, by finishing what his predecessor Nixon had started.
Reagan ended the Cold War by upping the ante on the USSR with his multi-billion dollar “Star Wars” defense shield, and had no compunctions about calling the Soviet Block “The Evil Empire”. It was Reagan who precipitated the disintegration of the USSR, bankrupting them as they tried to keep up, and forcing the pulling down of the Berlin Wall. Reagan, avuncular and steely at once, was the only one amongst his global contemporaries, who pulled it off without losing any of his popularity.
Today, as we look around us here in India, the epitome of a soft state, bullied by our neighbours, intimidated by multiple pressure groups, reeling day-to-day from the havoc being wrought by Jihadists, Naxalites, “freedom fighters”, communalists of various hue, and other assorted thugs; we might do well to remember Prime Minister Indira Gandhi. Mrs. Gandhi did not play ducks and drakes with India’s internal security.
There was then, as there is now, much public debate, much media critique, motivated, narrow, and sectarian politicians pushing their agendas, equally vociferous civil society caterwauling; and just as many accusations of victimisation and persecution of minorities.
Thomas Sowell, an American writer and economist from the 1930’s wrote: “If the battle for civilization comes down to the wimps versus the barbarians, the barbarians are going to win.”
That there are barbarians at the gate is beyond doubt. We must be busy with our understanding of civilisation, but either way, for our survival, we cannot afford to be wimps.
(1,050 words)
10th October 2008
Gautam Mukherjee
Published in print, The Pioneer, Tuesday, October 14th, 2008, as "Barbarians at the gate" and online at www.dailypioneer.com Also see it archived under "Columnists" at www.dailypioneer.com
Wednesday, October 8, 2008
Opportunity Knocks If We React Quickly Enough!
Opportunity Knocks If We React Quickly Enough!
India has a mere twelve per cent exposure to the export market: software, back-office customer support and Business Process Outsourcing (BPO) services, diamond polishing and re-export, auto parts, engineered goods, other exports, iron ore, grain, sundry commodities and, its people, both skilled and unskilled. This is despite our best efforts to date, and not by design. Our impact on world trade is around 1 per cent. That is why our inward remittances from Indians working abroad rival our export figures.
But, as things stand in the global economy, our currently low dependence on exports puts India in a unique pole position and affords a great opportunity to benefit from the present situation.
Because India runs overwhelmingly on its internal growth drivers, and even as the global financial markets are melting down, Finance Minister P Chidambaram, blithely ignoring the 500 and 700 point daily drops in the Sensex, says he still expects to restore a 9 per cent Gross Domestic Product(GDP) growth rate in fiscal 2009.
Mr. Chidambaram is backed up by the Planning Commission’s Mr. Montek Singh Ahluwalia, who still expects us to post an 8 per cent GDP growth in fiscal 2008 and suggests the stopped Foreign institutional Investment (FII) flows will resume after a couple of months.
Commerce Minister Kamal Nath also supports the view that our economy is doing well, citing revived manufacturing statistics, export statistics, investment statistics and particularly, a 124 per cent rise in Foreign Direct Investment (FDI); the last most welcome, because this money goes into the ground to create new factories, facilities and jobs.
The Prime Minister too is hinting at imminent change, saying that the Reserve Bank(RBI) is watching the liquidity situation very carefully.
When all the economists in the government, including Mr. Subbarao at the RBI, and Mr. Bhave at the Securities and Exchange Board (SEBI), keen on facilitating liquidity, one might be forgiven for reading the pronouncements as intended and rapid unmuzzling of the Indian economy, after a year spent obsessed with inflation. It looks like our economic managers are hinting at reducing some of the highest lending rates in the world, sooner rather than later, given the understandable drying up of foreign fund flows.
If India indeed cuts RBI regulated lending rates aggressively, for once as a pre-emptive measure, the country could benefit immensely. If the RBI cuts rates in a motivated, planned, monitored, and phased manner, say every six weeks, inclusive of the Repurchase Agreements (Repo), the Reverse Repo, and the Prime Lending Rate; and further cuts the Cash Reserve Ratio(CRR) of banks, say, once every quarter for the next year; we could see spectacular results in reaction.
After all, even with four further half percent cuts in the CRR, Indian banks would still be capitalised higher than everywhere else, albeit lower than the current 10 to 13.65 per cent. This conservatism with Cash Reserve Ratios is welcome in these uncertain times, and in any case, our lending processes are rigorous, and loans go only to the most deserving candidates. But, all in all, all these actions, taken together, would inject very badly needed liquidity into parched business and industry.
If undertaken, it will deliver a dramatic jump-start to our artificially suppressed economy, get our infrastructure projects surging forward, and get all our business and industry motors humming again. We will suffer a little consequent inflation perhaps, from consumerism, with cheaper money oiling the wheels, but not much, because it will be offset by decelerating oil prices and enhanced growth in the near term.
What we would also gain, by way of contrast, if nothing else, is a star economy in a sea of troubled ones. At present, in the celebrated BRIC, only Brazil is weathering the storm well. Russia is down with oil, and China is afflicted by US weakness. And that leaves us.
In fact, the contrast between the somewhat devalued trillion dollar Indian economy and the battered 3.5 trillion Chinese economy, is in the ways the two are structured. A full third of the Chinese economy is dependent on exports and another third on contract manufacturing for entities abroad, mainly US companies.
Similar, or even higher figures obtain for Japan, South Korea, Indonesia, Malaysia—all with their economies heavily dependent on US purchasing.
Singapore, a large, Canary Wharf-like Asian office block for the West, ditto Hong Kong, if you ignore the looming mainland, and beleaguered, tourism dependent Thailand, are also in trouble and largely helpless in the near term.
Other Asian economies such as Vietnam, Cambodia, Myanmar, tiny Brunei and even Australia, do not figure as emerging markets that can yield bumper profits for anyone. Australia has grown dependent on the Chinese and Japanese, both down themselves, in lieu of the distant and now recession hit Europeans. Myanmar, with considerable potential, is, sadly, locked away in its own time-warp.
SAARC Economies such as Pakistan, Nepal, Sri Lanka and Bangladesh, in our immediate neighbourhood, are slight, and bedevilled by long term weaknesses and deep political instability.
This is the time therefore for India to be bold. It has every reason to pump-prime its economy now, when our problems are few in comparison, and when almost every other country is falling hard. We are down in sympathy, no more. If we can successfully demonstrate that our domestic economy alone can retain growth rates of 9 per cent, even without foreign fund flows, we will paradoxically, and inevitably, attract massive foreign investment, both as FDI and FII.
Not everyone is currently penniless abroad. The Sovereign Funds of the oil rich nations have very few decent investment options in the near term. Our relaxation of Participatory Notes norms should be accompanied by a Ministry of Commerce initiative to attract such monies. We should not make the perennial mistake of always and exclusively looking West in all seasons, even for External Commercial Borrowing (ECB) operations, also recently opened up again.
Our bourses have fallen to below 50 per cent of peak levels in the face of an FII and Hedge Fund withdrawal of a mere USD 10 billion since we learned of the sub-prime crisis. Just one Sovereign Fund from the Gulf could set such an amount right! It is, after all a win-win situation for both. We could, if we seize the moment, become the best performing economy and market in the world, circa 2009.
(1.050 words)
October 8th, 2008
Gautam Mukherjee
India has a mere twelve per cent exposure to the export market: software, back-office customer support and Business Process Outsourcing (BPO) services, diamond polishing and re-export, auto parts, engineered goods, other exports, iron ore, grain, sundry commodities and, its people, both skilled and unskilled. This is despite our best efforts to date, and not by design. Our impact on world trade is around 1 per cent. That is why our inward remittances from Indians working abroad rival our export figures.
But, as things stand in the global economy, our currently low dependence on exports puts India in a unique pole position and affords a great opportunity to benefit from the present situation.
Because India runs overwhelmingly on its internal growth drivers, and even as the global financial markets are melting down, Finance Minister P Chidambaram, blithely ignoring the 500 and 700 point daily drops in the Sensex, says he still expects to restore a 9 per cent Gross Domestic Product(GDP) growth rate in fiscal 2009.
Mr. Chidambaram is backed up by the Planning Commission’s Mr. Montek Singh Ahluwalia, who still expects us to post an 8 per cent GDP growth in fiscal 2008 and suggests the stopped Foreign institutional Investment (FII) flows will resume after a couple of months.
Commerce Minister Kamal Nath also supports the view that our economy is doing well, citing revived manufacturing statistics, export statistics, investment statistics and particularly, a 124 per cent rise in Foreign Direct Investment (FDI); the last most welcome, because this money goes into the ground to create new factories, facilities and jobs.
The Prime Minister too is hinting at imminent change, saying that the Reserve Bank(RBI) is watching the liquidity situation very carefully.
When all the economists in the government, including Mr. Subbarao at the RBI, and Mr. Bhave at the Securities and Exchange Board (SEBI), keen on facilitating liquidity, one might be forgiven for reading the pronouncements as intended and rapid unmuzzling of the Indian economy, after a year spent obsessed with inflation. It looks like our economic managers are hinting at reducing some of the highest lending rates in the world, sooner rather than later, given the understandable drying up of foreign fund flows.
If India indeed cuts RBI regulated lending rates aggressively, for once as a pre-emptive measure, the country could benefit immensely. If the RBI cuts rates in a motivated, planned, monitored, and phased manner, say every six weeks, inclusive of the Repurchase Agreements (Repo), the Reverse Repo, and the Prime Lending Rate; and further cuts the Cash Reserve Ratio(CRR) of banks, say, once every quarter for the next year; we could see spectacular results in reaction.
After all, even with four further half percent cuts in the CRR, Indian banks would still be capitalised higher than everywhere else, albeit lower than the current 10 to 13.65 per cent. This conservatism with Cash Reserve Ratios is welcome in these uncertain times, and in any case, our lending processes are rigorous, and loans go only to the most deserving candidates. But, all in all, all these actions, taken together, would inject very badly needed liquidity into parched business and industry.
If undertaken, it will deliver a dramatic jump-start to our artificially suppressed economy, get our infrastructure projects surging forward, and get all our business and industry motors humming again. We will suffer a little consequent inflation perhaps, from consumerism, with cheaper money oiling the wheels, but not much, because it will be offset by decelerating oil prices and enhanced growth in the near term.
What we would also gain, by way of contrast, if nothing else, is a star economy in a sea of troubled ones. At present, in the celebrated BRIC, only Brazil is weathering the storm well. Russia is down with oil, and China is afflicted by US weakness. And that leaves us.
In fact, the contrast between the somewhat devalued trillion dollar Indian economy and the battered 3.5 trillion Chinese economy, is in the ways the two are structured. A full third of the Chinese economy is dependent on exports and another third on contract manufacturing for entities abroad, mainly US companies.
Similar, or even higher figures obtain for Japan, South Korea, Indonesia, Malaysia—all with their economies heavily dependent on US purchasing.
Singapore, a large, Canary Wharf-like Asian office block for the West, ditto Hong Kong, if you ignore the looming mainland, and beleaguered, tourism dependent Thailand, are also in trouble and largely helpless in the near term.
Other Asian economies such as Vietnam, Cambodia, Myanmar, tiny Brunei and even Australia, do not figure as emerging markets that can yield bumper profits for anyone. Australia has grown dependent on the Chinese and Japanese, both down themselves, in lieu of the distant and now recession hit Europeans. Myanmar, with considerable potential, is, sadly, locked away in its own time-warp.
SAARC Economies such as Pakistan, Nepal, Sri Lanka and Bangladesh, in our immediate neighbourhood, are slight, and bedevilled by long term weaknesses and deep political instability.
This is the time therefore for India to be bold. It has every reason to pump-prime its economy now, when our problems are few in comparison, and when almost every other country is falling hard. We are down in sympathy, no more. If we can successfully demonstrate that our domestic economy alone can retain growth rates of 9 per cent, even without foreign fund flows, we will paradoxically, and inevitably, attract massive foreign investment, both as FDI and FII.
Not everyone is currently penniless abroad. The Sovereign Funds of the oil rich nations have very few decent investment options in the near term. Our relaxation of Participatory Notes norms should be accompanied by a Ministry of Commerce initiative to attract such monies. We should not make the perennial mistake of always and exclusively looking West in all seasons, even for External Commercial Borrowing (ECB) operations, also recently opened up again.
Our bourses have fallen to below 50 per cent of peak levels in the face of an FII and Hedge Fund withdrawal of a mere USD 10 billion since we learned of the sub-prime crisis. Just one Sovereign Fund from the Gulf could set such an amount right! It is, after all a win-win situation for both. We could, if we seize the moment, become the best performing economy and market in the world, circa 2009.
(1.050 words)
October 8th, 2008
Gautam Mukherjee
Friday, October 3, 2008
Tales of Hands on Hank and Cool Hand PC
Tales of Hands on Hank and Cool Hand PC
CEO’s as front-men are hard-wired to be optimists.Henry, "Hank" Paulson, Treasury Secretary in the United States was, till lately, a consummate private sector CEO. He did very well at the helm of Goldman Sachs, just before taking on, probably the worst paying job of his life, in the US government.
Our own Mr. P. Chidambaram (PC) is a patrician Senior Counsel of lofty, if expensive, integrity; backed by much inherited land-holding and old money; gilded further by erudition and intellectual superiority; and crowned by tempered political experience. This is, after all, Mr. Chidambaram’s third stint as Union Finance Minister.
So, it is not surprising that every time PC makes one of his anodyne pronouncements on the state of the Indian economy, its stability, its prudence, in contrast with the financial storm that has seized the Western world; it soothes our financial markets and reinforces shaky sentiment. PC does not think we are in any substantial danger of being caught in the maelstrom, despite the Indian stock markets indulging their deep pessimism.
But PC’s boss, Prime Minister Manmohan Singh, quite the internationalist these days, glowing from his success with the Indo-US Nuclear Civil Cooperation Agreement, doesn’t believe we are insulated from the goings-on abroad. Being a celebrated economist himself, Mr. Singh warns us that we cannot possibly maintain our growth plans on track when the rest of the world is teetering on the edge of recession. He is therefore more interested in battening down the hatches and waiting out the fury.
But, in the eye of it, “Hands on Hank”, as The Economist describes Paulson, is challenged by the forces of posterity. He can fail, or go down in history as the man who, like the little Dutch boy with his finger in the dyke, prevented not only the trickle but the flood. And it is veritably a flood of absolute deluge proportions. Paulson did wonder, just as he took the job, about just how many people left after a turn at government, with their reputations intact.
Hank didn’t readily accept the ferocity of the approaching storm at first, using one rescue at a time tactics. But now, Paulson is manning the pumps 24/7 with horns and sirens blaring. The trillion odd, handed out in rescuing Bear Stearns, Fannie Mae, Freddie Mac, AIG, Merrill Lynch; and sundry others, via the newly established government credit programme; plus watching over the orderly dismemberment of Lehman Brothers, will obviously help.
So will the new bailout pack of 700 billion. It too is very creditable first aid. But to create actual solvency and sail into calm waters with most of the flotilla will take much more money than is being talked about at present.
The good thing is, that the US government, like governments everywhere, do not have to find real money in a drawer, to pay out. Governments can simply make book entries for lines of credit; and print more greenbacks on demand, for those who insist on cash. The US financial services economy is leveraged to about 3.5 times the size of the real economy of 12 to 15 trillion, and there is not much choice, because no one else, not even the funds rich Sovereign Funds from the Gulf, are going to throw good money after bad.
Still, the US government, of all governments, is good for the debt. Beside Henry Paulson’s colleague Ben Bernanke, at the Federal Reserve, will cut interest rates all the way to a quarter per cent, if need be, in a replay of the post 9/11 scenario.
Europe will be following suit; and begin by cutting interest rates this week, in addition to its frantic spate of nationalisations. Because, standing on the platform of their smaller economies, they are, in fact, leveraged much more than the US.
India is going to be conservative, months away from general elections, and with food prices spiking higher, but it will probably be persuaded to ease-up on its chokingly high interest rates designed to curb inflation.
Inflation is, in any case, headed downwards now. But so is growth, estimated now at about 6.5 to 7 per cent for fiscal 2008, down from the 8 to 8.5 per cent thought of just a couple of months ago. But, India could ease up; oil prices have dropped and look like they will stay below USD 100 a barrel for some time to come against reduced demand.
While the global analysis from all sides is deeply pessimistic, the state of play in America is hardly irremediable. Consider the fact that the bailout of USD 700 billion represents just 6 per cent of American GDP and the prior nationalisations and loans another 8 per cent or so. US unemployment is still at just 6 per cent, and not the 20 per cent it was in the Great Depression. Of course, the American economy is also much larger than it was in the 1930s and consequently more resilient.
But for now, as long as it is the government underwriting, nationalising, and printing notes, as necessary, there is really nothing to fear but fear itself. It is fortunate that Republican urges to back free-market capitalism have been reigned in, because at present, that simply wouldn’t work.
On the plus side, the US and European governments are picking up a lot of deleveraged assets very cheap, and buying off equity considerably below par. They are likely to make a profit on quite a lot of it in due course. In a miniscule parallel that is exactly what the Indian government rescue of Unit 64 achieved. They also end up providing much needed succour to the general public.
With all this turmoil, there are those who are announcing the imminent deposition of America as the pre-eminent economic power in the world. These delusional personages are unlikely to see this fond wish come true. But, calmer heads, like PC’s and that of the Prime Minister might well see opportunity calling. India could earn a bigger say in the international financial system as just rewards for our fiscal prudence and efficient management.
We have already been allowed, on an exceptional basis, to pull up a chair to the nuclear high table. Who knows, there may be quite a few others, waiting for us in the financial centres of the Western world too.
(1,050 words)
October 3rd, 2008
Gautam Mukherjee
Published in The Pioneer on the OP-ED Page as "Needed,a bold response" on Wednesday, October 8, 2008 and online at www.dailypioneer.com
CEO’s as front-men are hard-wired to be optimists.Henry, "Hank" Paulson, Treasury Secretary in the United States was, till lately, a consummate private sector CEO. He did very well at the helm of Goldman Sachs, just before taking on, probably the worst paying job of his life, in the US government.
Our own Mr. P. Chidambaram (PC) is a patrician Senior Counsel of lofty, if expensive, integrity; backed by much inherited land-holding and old money; gilded further by erudition and intellectual superiority; and crowned by tempered political experience. This is, after all, Mr. Chidambaram’s third stint as Union Finance Minister.
So, it is not surprising that every time PC makes one of his anodyne pronouncements on the state of the Indian economy, its stability, its prudence, in contrast with the financial storm that has seized the Western world; it soothes our financial markets and reinforces shaky sentiment. PC does not think we are in any substantial danger of being caught in the maelstrom, despite the Indian stock markets indulging their deep pessimism.
But PC’s boss, Prime Minister Manmohan Singh, quite the internationalist these days, glowing from his success with the Indo-US Nuclear Civil Cooperation Agreement, doesn’t believe we are insulated from the goings-on abroad. Being a celebrated economist himself, Mr. Singh warns us that we cannot possibly maintain our growth plans on track when the rest of the world is teetering on the edge of recession. He is therefore more interested in battening down the hatches and waiting out the fury.
But, in the eye of it, “Hands on Hank”, as The Economist describes Paulson, is challenged by the forces of posterity. He can fail, or go down in history as the man who, like the little Dutch boy with his finger in the dyke, prevented not only the trickle but the flood. And it is veritably a flood of absolute deluge proportions. Paulson did wonder, just as he took the job, about just how many people left after a turn at government, with their reputations intact.
Hank didn’t readily accept the ferocity of the approaching storm at first, using one rescue at a time tactics. But now, Paulson is manning the pumps 24/7 with horns and sirens blaring. The trillion odd, handed out in rescuing Bear Stearns, Fannie Mae, Freddie Mac, AIG, Merrill Lynch; and sundry others, via the newly established government credit programme; plus watching over the orderly dismemberment of Lehman Brothers, will obviously help.
So will the new bailout pack of 700 billion. It too is very creditable first aid. But to create actual solvency and sail into calm waters with most of the flotilla will take much more money than is being talked about at present.
The good thing is, that the US government, like governments everywhere, do not have to find real money in a drawer, to pay out. Governments can simply make book entries for lines of credit; and print more greenbacks on demand, for those who insist on cash. The US financial services economy is leveraged to about 3.5 times the size of the real economy of 12 to 15 trillion, and there is not much choice, because no one else, not even the funds rich Sovereign Funds from the Gulf, are going to throw good money after bad.
Still, the US government, of all governments, is good for the debt. Beside Henry Paulson’s colleague Ben Bernanke, at the Federal Reserve, will cut interest rates all the way to a quarter per cent, if need be, in a replay of the post 9/11 scenario.
Europe will be following suit; and begin by cutting interest rates this week, in addition to its frantic spate of nationalisations. Because, standing on the platform of their smaller economies, they are, in fact, leveraged much more than the US.
India is going to be conservative, months away from general elections, and with food prices spiking higher, but it will probably be persuaded to ease-up on its chokingly high interest rates designed to curb inflation.
Inflation is, in any case, headed downwards now. But so is growth, estimated now at about 6.5 to 7 per cent for fiscal 2008, down from the 8 to 8.5 per cent thought of just a couple of months ago. But, India could ease up; oil prices have dropped and look like they will stay below USD 100 a barrel for some time to come against reduced demand.
While the global analysis from all sides is deeply pessimistic, the state of play in America is hardly irremediable. Consider the fact that the bailout of USD 700 billion represents just 6 per cent of American GDP and the prior nationalisations and loans another 8 per cent or so. US unemployment is still at just 6 per cent, and not the 20 per cent it was in the Great Depression. Of course, the American economy is also much larger than it was in the 1930s and consequently more resilient.
But for now, as long as it is the government underwriting, nationalising, and printing notes, as necessary, there is really nothing to fear but fear itself. It is fortunate that Republican urges to back free-market capitalism have been reigned in, because at present, that simply wouldn’t work.
On the plus side, the US and European governments are picking up a lot of deleveraged assets very cheap, and buying off equity considerably below par. They are likely to make a profit on quite a lot of it in due course. In a miniscule parallel that is exactly what the Indian government rescue of Unit 64 achieved. They also end up providing much needed succour to the general public.
With all this turmoil, there are those who are announcing the imminent deposition of America as the pre-eminent economic power in the world. These delusional personages are unlikely to see this fond wish come true. But, calmer heads, like PC’s and that of the Prime Minister might well see opportunity calling. India could earn a bigger say in the international financial system as just rewards for our fiscal prudence and efficient management.
We have already been allowed, on an exceptional basis, to pull up a chair to the nuclear high table. Who knows, there may be quite a few others, waiting for us in the financial centres of the Western world too.
(1,050 words)
October 3rd, 2008
Gautam Mukherjee
Published in The Pioneer on the OP-ED Page as "Needed,a bold response" on Wednesday, October 8, 2008 and online at www.dailypioneer.com
Wednesday, September 17, 2008
Profits Privatised Losses Socialised!
Profits privatised, losses socialised
The Hispanic investment analyst I was listening to this morning on CNN was upset. He was angry as to how an insurance company, AIG, the biggest in
There is similar outrage and bewilderment with regard to the fate of the 158 year old Lehman Brothers, regarded as a blue-chip investment bank till even two weeks ago, and Merrill Lynch too. These were, till a week ago, amongst the most coveted places to go to work. But now, watching images of hundreds of investment bankers walking out across the plazas outside their offices, holding the contents of their office desks in cartons; it is as if there never was a sense of responsibility in the Boards of Directors that determine policy in these top-notch financial institutions.
So what really happened? We need to understand, because there will be more and more revelations and collapses, because of globalisation, and interdependency, and the common belief that risk shared is risk diminished; in America, in Europe, Japan, China, Australia, Singapore.
A lot of this is happening because of a relentless pressure to achieve higher and higher profits. Companies, banks, and Boards are constantly analysed and commented on for their performance. Accounting systems are honed to deliver results in as short a time-span as possible. The future is seen as a continuum of the travelator-like present. No CEO dares to deviate and must need understand that no tomorrow can compensate for a poorly performed today.
But naturally, big profits, month on month, quarter after quarter, cannot come without accompanying risk. And as the competition intensifies, high street banks and insurance companies start behaving like investment banks, and investment banks look uncannily like hedge funds, and the whole hyperactive daisy-chain looks normal each to each, because speculation is the common language.
And the speculative, robber-baron style activity, designed to deliver multiples in profit, replaces the erstwhile 7 to 15% returns, from boring banking and commission based processes. And this roulette wheel style of placing business bets, is conducted not just with the institutions own money and reserves, but with multiples, borrowed against such reserves, and every asset in sight, owned, pledged to it, or even committed to on paper but not yet turned into reality!
And if anybody in this frenetic food chain, fuelled by luxury condominiums, luxe holidays, first class travel, top-end cars and massive salaries/ bonuses, feels nervous; why, they just look around themselves and simply do as others, peers, superiors, everyone they know professionally, do.
Abnormal is bound to seem normal in this context. All “oversight” reboots to treat the prevailing wind as a given or constant; anxious to be up-to-date, and not be left behind in the race.
Audit looks at processes rather than the executive decisions behind them, which, unless, it violates laws, is none of their business, besides. And laws are never onerous in a capitalist system based on risk and chutzpah, especially in the richest and mightiest country in the world.
Rating agencies rate according to levels of profit achieved and not according to the degree of caution shown. Caution, as Gordon Gekko might have said, in his heyday, and much before the fall, is for wimps.
And then, when it all comes unstuck, there is a baying for scapegoats that are not easy to find. Unless, that is, one intends to punish the entire financial services sector of the Western World and probably a good deal of the globalised Eastern world as well.
Lehman, it turns out, is funded quite substantially by the Chinese, the South Koreans, the Japanese.
The point about Capitalism is that it is prone to exploiting the system. It has done so once again. And this will not be the last time by any means, no matter how much knee-jerk oversight and controls are put in.
Once, in the Great Depression, inspired by concepts of divine retribution being the just desserts for greed; the
That hopefully, will never happen again. It is altogether appropriate therefore that the
So, it is good that AIG has been given an expensive bridge loan of 80 billion US dollars against 80% of its equity at nearly 12%. It is also good that the government has nudged American Bank to purchase Merrill Lynch and Barclays Bank to pick up the pieces of Lehman gone into Chapter 11 bankruptcy.
Lehman may not touch the lives of ordinary Americans but letting the Chinese, the Japanese and the South Koreans down is also not acceptable in today’s world.
This is obviously not devil take the hindmost capitalism, nor the purity of a free market left to its own devices. But it is right because the consequences of being dogmatic can result in nothing but pointless pain. Of course, in the process of bailing out the collective of culprits, the government of America, of those in Europe, of all elsewhere in the free world affected by this crisis, are, as the Hispanic analyst said, letting them get away with the profits while picking up the losses with taxpayer money.
But let us remember that most financial services players too have been caught in the flytrap, and are looking not just at loss of livelihood but near or total depletion of their net worth.
Here in
(1,050 words)
17th September 2008
Gautam Mukherjee
Updated version entitled "Down, but not yet out" published in The Pioneer, OP-ED Page on September 22, 2008 and online at www.dailypioneer.com
Wednesday, September 10, 2008
Pay the Piper Never Mind the Tune
Pay the Piper Never Mind the Tune
Sailing the ship of state is, at all times, an expensive proposition. In India, for over fifty years now, ever since the last vestiges of Gandhian austerity faded away, we have been treated to the spectacle of excessive government spending, on itself, and the way it works. This ranges from the housing, security, entourages and junkets of our elected leaders, both at the central and state levels. It continues unabated in the spendthrift manner the bureaucracy, in turn, conducts itself. There is little or no accountability to the public. Most of this expenditure is off-budget and tucked under various heads. It dwarfs the sanctioned direct cost figures by many times.
It is therefore something of a wonder that this country continues to grow. There are much richer, more developed, albeit smaller countries, that make the business of government a simpler, more efficient, and less expensive affair. But India takes its cues, probably from the Mughals and the British of yore, neglecting, conveniently, to focus on the fact that their establishments and equipage were nowhere near as vast in absolute terms!
So, it stands to reason that putting yet another raft of large figures on the table in the nature of a recurring bill, tends, inevitably, to irk. That is why most of the bigger operating expenses are not displayed for public scrutiny, except in a theoretical sense, under charades such as the RTI.
But when an item of expenditure pokes the public in the eye, being in the public domain, supported ultimately by our taxes, we tend to react adversely. It is another matter that this sense of our proprietorship is largely belied by the government’s cavalier reliance on its sovereign borrowing and inflation inducing deficit financing. But be assured, we citizens are not required to give our permissions, even as we pay the bill with interest! The moot point, as always, is, are we getting anything like our money’s worth?
But, leaving the grand macro-economics, the ultimate liability and cost-benefit questions aside for a bit, it must be admitted that when it comes to the government servant’s salary hike, it is indeed long overdue. And it is hard to imagine any of the recipients being more than shrug-worthily happy. This, despite an average net jump of over 30 per cent. That is why, we, the public, must stay unsurprised when the 6th Pay Commission’s recommendations, endorsed on the eve of our 61st Independence Day, with an upward revision, and with retrospective effect from January 2006, are met with more sighs than cheers.
The numbers, given the size of our gargantuan bureaucracy, are neither negligible nor huge, compared, for example, to the farm loans waiver, or the cost of armaments. The total cost of implementation of the Pay Commission’s recommendations, to benefit 55 lakh Central government employees, is about Rs. 17,798 crore annually. This excludes the arrears, those retrospective benefits inevitable in a system that grinds both slowly and fine. The back pay will, in fact, whack the national exchequer with a single blow of Rs. 29,373 crore, and additional hikes beyond the suggestions of the Commission will cost another Rs. 11,000 crores annually.
And then there’s the pension entitlements of our many central government superannuated. All this comes on top of the existing central government wage bill of roughly Rs. 30,000 crore per annum. So, the total, under various heads, will look more like the Rs. 71,000 crore farm loan waiver after all. And coincidentally, it will make about the same difference to the state of affairs in government, as far as the public is concerned, as the loan waiver has made to the poor farmers.
And the foregoing does not take into account the Commission’s impact, if its recommendations are implemented, in the States. The States may be notoriously profligate, but will be under moral pressure nevertheless to give their babus as much as the centre does.
If one is not churlish, it should not be anyone’s case to grudge the government servant his pay hike. But having said that, in the public mind, the sheer size and multiplicity of our government is incomprehensible. It is this, and the fudging of our real deficit figures, that might see the ship of state run aground yet, as it did in the USSR.
There was a time, in the fifties, when business, industry, the private sector and services were all in their infancy, when it could be argued that it made sense to employ five to do one man’s job. It represented a measure of welfarism in a land of little opportunity and fitted in nicely with the Fabian Socialist cum Soviet derived statist thinking of the times. But later, particularly nearly two decades on from the open sesame of 1991, it is clearly an unwieldy government we have, bossy, unfriendly, ponderous, and, taking into account the natural ingenuity of the Indian people, in the way.
We have a robust democracy today and a free press/media, but one that is largely unable to deliver change. Most of our political energies likewise go into managing each other rather than contributing to the progress of the country. Perhaps the answer, Ronald Reagan and Margaret Thatcher fashion, lies in less intellectualism, less partisanship, and a determined effort to cut down “big government” that has proved inefficient all over the world.
We need no longer fear that the government is the sole repository of faith for the common man. All that was self-serving socialist propaganda after all, and may ultimately account for most of those sighs over cheers on the part of government employees.
At least we can be sure of one thing today--government may still be the biggest employer but not perhaps the preferred one anymore. We have a big fiscal deficit problem of course, much bigger than we officially admit, estimated by the World Bank at nearer the 10 per cent mark, when one adds in all the election year sops, the PSU losses and State Electricity Board bad debts.
In any case, it is much higher than the wildly optimistic 3 per cent the government cites. The government knows this, but it is banking on buoyant GDP growth rates to keep itself afloat. But shouldn’t the government, a much smaller one, content itself with responsiveness to the public and governing instead?
(1,050 words)
Gautam Mukherjee
September 10th, 2008
Also published by The Pioneer on 16th September, 2008 on the OP-ED Page as "Just pay the piper!" and online at www.dailypioneer.com
Sailing the ship of state is, at all times, an expensive proposition. In India, for over fifty years now, ever since the last vestiges of Gandhian austerity faded away, we have been treated to the spectacle of excessive government spending, on itself, and the way it works. This ranges from the housing, security, entourages and junkets of our elected leaders, both at the central and state levels. It continues unabated in the spendthrift manner the bureaucracy, in turn, conducts itself. There is little or no accountability to the public. Most of this expenditure is off-budget and tucked under various heads. It dwarfs the sanctioned direct cost figures by many times.
It is therefore something of a wonder that this country continues to grow. There are much richer, more developed, albeit smaller countries, that make the business of government a simpler, more efficient, and less expensive affair. But India takes its cues, probably from the Mughals and the British of yore, neglecting, conveniently, to focus on the fact that their establishments and equipage were nowhere near as vast in absolute terms!
So, it stands to reason that putting yet another raft of large figures on the table in the nature of a recurring bill, tends, inevitably, to irk. That is why most of the bigger operating expenses are not displayed for public scrutiny, except in a theoretical sense, under charades such as the RTI.
But when an item of expenditure pokes the public in the eye, being in the public domain, supported ultimately by our taxes, we tend to react adversely. It is another matter that this sense of our proprietorship is largely belied by the government’s cavalier reliance on its sovereign borrowing and inflation inducing deficit financing. But be assured, we citizens are not required to give our permissions, even as we pay the bill with interest! The moot point, as always, is, are we getting anything like our money’s worth?
But, leaving the grand macro-economics, the ultimate liability and cost-benefit questions aside for a bit, it must be admitted that when it comes to the government servant’s salary hike, it is indeed long overdue. And it is hard to imagine any of the recipients being more than shrug-worthily happy. This, despite an average net jump of over 30 per cent. That is why, we, the public, must stay unsurprised when the 6th Pay Commission’s recommendations, endorsed on the eve of our 61st Independence Day, with an upward revision, and with retrospective effect from January 2006, are met with more sighs than cheers.
The numbers, given the size of our gargantuan bureaucracy, are neither negligible nor huge, compared, for example, to the farm loans waiver, or the cost of armaments. The total cost of implementation of the Pay Commission’s recommendations, to benefit 55 lakh Central government employees, is about Rs. 17,798 crore annually. This excludes the arrears, those retrospective benefits inevitable in a system that grinds both slowly and fine. The back pay will, in fact, whack the national exchequer with a single blow of Rs. 29,373 crore, and additional hikes beyond the suggestions of the Commission will cost another Rs. 11,000 crores annually.
And then there’s the pension entitlements of our many central government superannuated. All this comes on top of the existing central government wage bill of roughly Rs. 30,000 crore per annum. So, the total, under various heads, will look more like the Rs. 71,000 crore farm loan waiver after all. And coincidentally, it will make about the same difference to the state of affairs in government, as far as the public is concerned, as the loan waiver has made to the poor farmers.
And the foregoing does not take into account the Commission’s impact, if its recommendations are implemented, in the States. The States may be notoriously profligate, but will be under moral pressure nevertheless to give their babus as much as the centre does.
If one is not churlish, it should not be anyone’s case to grudge the government servant his pay hike. But having said that, in the public mind, the sheer size and multiplicity of our government is incomprehensible. It is this, and the fudging of our real deficit figures, that might see the ship of state run aground yet, as it did in the USSR.
There was a time, in the fifties, when business, industry, the private sector and services were all in their infancy, when it could be argued that it made sense to employ five to do one man’s job. It represented a measure of welfarism in a land of little opportunity and fitted in nicely with the Fabian Socialist cum Soviet derived statist thinking of the times. But later, particularly nearly two decades on from the open sesame of 1991, it is clearly an unwieldy government we have, bossy, unfriendly, ponderous, and, taking into account the natural ingenuity of the Indian people, in the way.
We have a robust democracy today and a free press/media, but one that is largely unable to deliver change. Most of our political energies likewise go into managing each other rather than contributing to the progress of the country. Perhaps the answer, Ronald Reagan and Margaret Thatcher fashion, lies in less intellectualism, less partisanship, and a determined effort to cut down “big government” that has proved inefficient all over the world.
We need no longer fear that the government is the sole repository of faith for the common man. All that was self-serving socialist propaganda after all, and may ultimately account for most of those sighs over cheers on the part of government employees.
At least we can be sure of one thing today--government may still be the biggest employer but not perhaps the preferred one anymore. We have a big fiscal deficit problem of course, much bigger than we officially admit, estimated by the World Bank at nearer the 10 per cent mark, when one adds in all the election year sops, the PSU losses and State Electricity Board bad debts.
In any case, it is much higher than the wildly optimistic 3 per cent the government cites. The government knows this, but it is banking on buoyant GDP growth rates to keep itself afloat. But shouldn’t the government, a much smaller one, content itself with responsiveness to the public and governing instead?
(1,050 words)
Gautam Mukherjee
September 10th, 2008
Also published by The Pioneer on 16th September, 2008 on the OP-ED Page as "Just pay the piper!" and online at www.dailypioneer.com
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