Delhi Does The Democratic Shuffle

Delhi Does The Democratic Shuffle

Whatever be its tamasha factor, Indian democracy certainly rocks. Of late, its also begun to roll, asserting itself big time. Voting percentages are up. The electorate is bigger. Eight months ago, it raised a once-upon-a-time chaiwala to the primeminister’s gaddi, and neatly chucked out a ten year-old Government; legacy and all.

Today, it put a muffler/topi-clad former tax inspector on the CM’s chair in Delhi. At the same time, it definitely took down the fancy-suited PM a peg or two.

Lazy analysis might picture this Delhi election, with dramatic results, as a full-on Kabbadi match between the rich and poor. Over 67% of 1.33 crore voters turned out. Young, middle-aged, old, differently-abled; all just doing it, in an echo of the Nike slogan.

Hystericals are spinning it into a future class-war that will turn Delhi into Dharna Central. One that will give Mamata Didi’s Kolkata a run for its money. They talk of how AAP will export its successful model of victimhood politics to Punjab and other states.

But this is an over-simplification. It is true that the poor, and some of their not so poor friends voted in AAP, attracted perhaps by the promise of  electricity and water freebies, more schools, colleges, hospitals, free education, free WiFi etc.. So they decisively licked the BJP, despite their use of heavy artillery. But remember, it were these same people who gave all seven Delhi seats for the Lok Sabha chunao to the chaiwala, just eight months ago. So, what changed so quickly?

Maybe nothing. To some, it’s an ideal combination: Modi with his strong administrative experience and economic record, running things at the national level; and Kejriwal, with his fire-brand activist’s heart, doing likewise in Delhi. Maybe something: the BJP is getting too big for its boots and needs some competition. And the Hindutva fringe is downright bugging. Besides, where are the new jobs?

This electoral verdict, at any rate, is very clear. It means the Delhi voter has decided to take a risk, and hopes that the AAP can run things better than the BJP here in the city-state. AAP seems keener, so might try harder. Mufflerman and his ministers might be easier to meet and intend to be less arrogant. They now have a full chance to live up to their promises.

Arvind Kejriwal says he wants to run an honest government and stamp out corruption. He says people were afraid to ask for bribes when AAP was in power for 49 days in 2013. He apologised for quitting, promised not to do so again, come what may.

The Delhi public wants to let him try again, this time for a full term. It’s been an incredible comeback for AAP.  

But Kejriwal is also looking over Delhi’s shoulder. Ever cocky, he says: ‘Move over Congress, AAP is the nation’s tallest opposition party’. Were the Delhi voters the first to recognize this? AAP is new, and brings in fresh blood. Ordinary people are often smarter than they look.

For: The Quint

(498 words)

February 10^th, 2015

Gautam Mukherjee

Show Me The Colour Of Your Money

Show Me The Colour Of Your Money

 The Modi Government has shown a greater seriousness than any of its predecessors in the pursuit of Black Money stashed abroad by establishing an SIT, soon after coming to power.

Between ex Supreme Court judges on the SIT, and the current Supreme Court monitoring the issue, there is great focus on the matter.  

The SIT has already ploughed through data related to some old lists of possible culprits, and now has a new one of 1,195 persons named on a HSBC Geneva Branch list. Nearly 500 people have already been contacted by the SIT, and many of them have admitted to tax evasion. But as this grind goes on, the quantum money in the foreign bank accounts is dwindling fast.

The process, involving the evaluation of data by different governments, takes a very long time.  Still, the Modi Government’s approach is to let the Courts decide, so that no charges of malice or vendetta can be levelled against it. The SIT has readied work on between 350 and 500 cases. The names made public by Indian Express via Le Monde may not all be evaders at all.

Wild or sensationalised attempts to effect a complicated chase after Black Money will yield nil results.  But, estimates of the monies stashed abroad illegally does run into $ 500 billion.

The hunt for ‘Black Money’, either held in cash, or in ‘safe havens’ domestically or abroad, comes up like a virus attack into the Governmental and public media space every now and then.  But the rank hypocrisy that attends this vexing question is like an independent law unto itself.

Some amounts, sometimes running into crores, are routinely caught and confiscated. But, nothing substantial has ever been done to effectively put a stop to either the generation, or concealment of Black Money.

At the heart of the problem is an inefficient system of tax collection, combined with a very high indirect and direct tax regime. The Black Money economy feels justified in its illegalities. It cites the inefficient use of tax money by the Government, and its rampant corruption and extortion at all levels.

And even when tax evasion is caught red-handed, it is quite often possible  to bribe one’s way out of it.

The incentive to evade taxes exists in all countries. It draws the ire of Civil Society here because it is a compendium of many instances of ill-gotten gain through bribery and corruption, combined with blatant tax evasion.

Yet Black Money is so pervasive that it runs a parallel economy that rivals the official one in size, if  not in scope. And as India’s economy grows,   and it is slated to grow at 7.5% in 2015, its Black Money economy will definitely keep up with it.   

Lately, the question of its ‘recovery’ has become something of a political football. Switzerland, with its famous confidentiality laws and numbered accounts, actually taxes its bank deposits. There are others, around the globe, which are tax-free and no-questions-asked.

Of course, seizing and bringing any of this money back to India is easier said than done. The foreign governments need proof of tax evasion that they will evaluate independently before giving their opinion. They won’t cooperate with ‘stolen’ lists. Every account held abroad by resident Indians has to be scrutinized individually, according to the Indian tax laws for wrongdoing.

NRI’s, in any case, are entitled to their stash abroad, and don’t pay Indian tax on their foreign income. A family, with some resident Indians and others who are non-resident, can, quite easily, spirit money abroad through extremely efficient international and unofficial banking channels aka  Hawala . These operate without traceable documentation. This money could then pass over to the NRIs in the family, and thereby not come legitimately into any Indian tax narrative.  

Indian law treats all financial wrong-doing as a civil offence, to be processed through its notoriously slow legal system. Tax evasion in America on the other hand, where it is not only both a civil and criminal offence, is dealt with fairly swiftly.  

The famous gangster from the 1930s, Al Capone, known to have personally murdered, or ordered the murder of many people, was, in the end, incarcerated. But he was jailed on charges of massive tax evasion and put away for the rest of his life.

Where it is going to be tough to get any Black Money back from abroad, other strategies should surely be considered. What can be done to wipe out the distinction between White Money and Black?

Any money put to work in the legitimate economy should be welcomed without questions. This may not be fair to honest tax payers, but it does make the best of a bad job.  Having said that, the question is, does the Modi Government want to solve this festering problem by doing away with the hypocrisy that surrounds it?

For: NitiCentral

(808 words)

February 9, 2015

Gautam Mukherjee

Delhi's Own Game Of Thrones

Delhi’s Own Game Of Thrones

This Delhi election, keenly fought, for its Vidhan Sabha, is scheduled to take place on the 7^th of February. It has generated nation-wide interest because it is seen as the first real challenge to the Modi Wave, extant since the Lok Sabha campaign in 2013. And it also involves two chief ministerial candidates from Anna Hazare’s erstwhile anti-corruption movement squaring off against each other, presidential style.

It also presents a stark choice between two very different approaches. The Congress/AAP though ostensibly competing for the same prize here, are sisters under the skin. They both want to seize this electoral opportunity to return to the old socialist formula of  welfarism, subsidies and populist freebies.

They are canvassing the same vote banks, over half the population of Delhi, some ten million strong, and at the inevitable expense of infrastructure development and better facilities. Such policies can run a prosperous state into bankruptcy. This has already happened to West Bengal where the TMC complains of empty coffers  all the time. Several others, like Punjab, can barely pay their Government salaries, running huge overdrafts to do so. And these eat up most of their revenues and receipts in interest payments alone.

The much vaunted welfare plans may well be election ploys to be forgotten later, but if implemented, even in part, must necessarily be financed by huge deficits, borrowing, accounting jugglery, a begging bowl, and financial profligacy.

Nevertheless, just the hope of the old order returning to mount a challenge to the Modi Government ruling at the Centre and many of the States, has many component parts  of the  national Opposition salivating.

The AAP was, of course, running a coalition with Congress for its bizarre 49 day Delhi Government in 2013, and could easily join up with Congress again if need be. Beyond Delhi, at a national level, and in other state jousts, such as in Punjab where AAP won 4 seats in  the Lok Sabha elections, this is more than likely, with the rest of the erstwhile UPA offering moral support.

The AAP has left no stone unturned in its effort to win this time. It has dumped its essentially fraudulent principles, with alacrity and cool contempt, and made a naked bid for power. It has not hesitated to employ every low stratagem, including securing funds from dubious sources, telling outright lies on verifiable TV, crying wolf frequently at the EC. It has used deliberate slander and misinformation, employed rank character assassination, played the whining victim, and used cunning pretense. For a new political party, this rapid development into a seasoned player is surely remarkable. However, it is disappointing too, given its early portrayal of itself as an honest and upright addition to the political discourse.

The AAP, if it wins, will have to keep its flock together, but that will not be easy when the gloves are off. Its stability and staying power will definitely be put to the test.

The alternative model, that of GDP led growth and competitive development between the states, is on offer from the BJP. It pledges safety, security, fast-track development of infrastructure, modernization, and expansion of existing facilities.

After the more or less month long campaign ended on the 5^th , the BJP put out full page advertisements on the 6^th , listing the several achievements of the Modi Government for Delhi over the last eight months. It makes for quite an impressive list that won’t be lost on the thinking voter.

In the nitty-gritty of the bare knuckled numbers, the populist AAP, is fighting for its political survival. 

But if it wins, the BJP will be under pressure to match its populism across the nation. This will turn off foreign investors, harm the national economy, and hamper plans to take this country on to a high growth path.

The Congress Party, which has ruled for three consecutive terms, ever since the Union Territory of Delhi was converted into a quasi-state (without control over Delhi Police or the land mass of Delhi), is expected to capture under 10 seats in the 70 seat Assembly. For the BJP, running slightly behind the AAP in most Opinion Polls, the Congress Party’s actual showing may help it clinch a victory.

The Congress tally of actual seats, and its vote clocked, will be snatched from AAP, which  shares the same vote banks, particularly in the absence of BSP this time.

The AAP is almost certain to get the largest vote share, about 40%, but its key support base of poor Muslims, Dalits and migrant labourers, are scattered across various constituencies. Just winning the most votes may not necessarily give it the most number of winning seats, says Firstpost.

In the final analysis, BJP may be the one to form the next Government of Delhi after all.

For: NitiCentral

(797 words)

February 6^th, 2015

Gautam Mukherjee

The Cold War Between The Indian Left & Right

The Cold-War Between The Indian Left &Right

Spies have always had it dead to rights- that perfectly cynical take on human nature. They need to understand the mechanics of deception as a stock-in-trade. Their lives, let alone their missions, depend on it.  Spies need to surf popular currents of emotion, to infiltrate, fit in, be trusted, be alert to undercurrents. Spies need to belong in the very communities they routinely betray.

In the acclaimed TV Serial The Americans, about a seemingly married couple of embedded KGB agents in the US  during the Cold Warring eighties; one of the protagonists tells her  teenage daughter, born in America, part offspring, part cover: ‘We see what we need to see in people, things that are not really there’.

This kind of selective view of reality amongst some of the political drivers of this country could cost us very much more than it already has.  The San Andreas style tectonic fault in India’s body politic is the willingness to distort the truth and subvert progress, for political gain.  

We are under threat, not just in the realms of formal security on the borders, but via a guerilla war of attrition in our homes and streets. This could, if unchecked, bring to naught all of India’s much vaunted economic promise.

Let us recall that James Headley, the half-American half-Pakistani double-agent (CIA/ISI), scoped out several Indian targets, including the nuclear facilities at Trombay, essentially using the goodwill of his Indian friends.

He was able to advance plan the micro-route map for 26/11, nine months in advance. It is providential that the subsequent operations did not simultaneously involve all of his recommended targets.

What happened at VT Station, the hospital near it, the Taj Mahal Hotel, Leopold Café and the Jewish Chabad House in Mumbai, was savage enough. Hundreds of innocents and some heroic combatants were slaughtered.  Horrendous as this was, it was intended to be a lot worse.

There have been scores of small and big terrorist atrocities over the years. And the fact is, we are ever vulnerable, partially because this country is far from being united in how to fight it.

To be ruthlessly effective in dedicated intelligence gathering, and action taken on its findings, let alone aggressive counter espionage, the political will must be unwavering. Israel is able to do it better than most, because the Jewish nation, works together.

The UPA Government, when 26/11 happened, was beholden to, and dependent on, its minority vote bank as usual, and felt it was impolitic to vigorously pursue Islamic terrorism in this country. It refused to distinguish between the terrorist and our millions of patriotic citizens who happen to be Muslim. It may be out of power now, but this attitude has not changed at all. 

And now, something of its political inheritor, the AAP, is already vanguarding the revival of the great socialist come back. It is eliciting support from the CPM, the TMC, Nitish Kumar’s JD(U) , the minorities, the dalits, the migrant labourers, and other disadvantaged sections. The AAP, with its come- one-come-all attitude, its newbieness, is more easy to fund and infiltrate.

Congress meanwhile, reduced to 44 seats in the Opposition, still sees things differently.  It heckled the Defence Ministry when the Pakistani fishing boat, laden with explosives, recently blew itself up 350 km. from Porbandar. That it should do so, when challenged by the Indian Coast Guard, was not accepted as an intended terrorist attack. That it was off the Gujarat coast on the eve of the Vibrant Gujarat Summit wasn’t convincing. Not even when the Summit was expecting John Kerry, Ban Ki Moon, the Prime Minister, several other notables, and hundreds of business leaders.

Congress said it could have been a vessel engaged in mere smuggling, flying in the face of reports of satellite phone intercepts between the boat’s crew and its handlers in Pakistan.  Other parties, catering to large Muslim constituencies also kept quiet. To the Congress Party and fellow travellers, any criticism of Islamic terrorism, even if it clearly emanates from Pakistan, is deemed to be ‘communal’ and ‘anti-secular’.  

The ISI and the Pakistani military establishment have long known this, and exploit it. Pakistan infiltrates its agents across our borders; tortures, mutilates and beheads our soldiers. It counts on little or no retaliation.

This has changed under NDA II to an extent, with a robust will to roll back such aggression. Determined efforts are also on to install a high tech border fence along the LoC, another bordering Bangladesh, roads along the Chinese border and the LaC, intensive patrolling of the desert border with Pakistan in Rajasthan and so on.

But over the last decade, Pakistan has also managed to foster the Indian Mujahideen (IM) and similar organisations, aided from Pakistan and its cells in Bangladesh, Nepal, the UAE, Thailand, etc., so that it can claim all domestic Islamic terrorism is home-grown disaffection.

We may know this to be clear misinformation in truth, but the parties wooing Muslim vote banks don’t care to counter it. Much more has been done in NDA II over just a few months to press the international community to condemn  global terrorism, than in the UPA’s decade past in power.

Pakistani propaganda has long said that Indian Muslims are unhappy, more so wherever the Muslims are in large numbers : Lucknow, Allahabad, Hyderabad, Meerut, Mumbai, Kolkata, New Delhi, and, of course, in J&K.  It depicts India as no more than a Hindu majority state, at some variance from its ‘secular’ pretensions.

India’s nearly 190 million Muslims are second-class citizens, according to this narrative. Pakistan maintains India, ruled by the Left or the Right, Congress or BJP, irrespective, only pays lip- service to Muslim welfare.

It is ironic therefore that the grand old party tries to portray itself as secular, along with its sisters under the skin, and the BJP/NDA as communal!  

The half-truth in the Pakistani slur, comes from the lack of Narendra Modi’s far more muscular level playing field pitch, implemented over the last 13 years by him for Gujarat’s Muslims in an environment of security. But one is not going to get AAP, Congress, the CPM, TMC, and others of their persuasion, to admit it.  

Similarly, the another popular canard, beloved of the Left-Leaning Liberal in India, is that we have brought the terrorism and anti-statism upon ourselves. They think the insurgents in the North East, the Maoists in the jungles of Central India and the East, are justified and a consequence of years of blatant neglect and exploitation/discrimination against the disadvantaged.

Socialists, the ones these people back, plead lack of resources whenever cornered.  But they never care to reflect on why their politics never generates a decent income.

To their liberal followers, equally hypocritical themselves, all the murder and mayhem, the hundreds of soldiers and policemen being killed in peace-time, including those in J&K, is not particularly condemnable. Cross-border terrorism isn’t cross border in origin at all to their view, but a consequence of Army oppression!

Some charismatic ultra- Leftists, like acclaimed writer Arundhati Roy, would like us to let go of Indian held Kashmir altogether, and surrender to every demand of the Maoist  ‘Gandhians with guns’, to boot.

And in the epic war between the seductive Leftist dream of legislated and politically engineered ‘equality’, and the prosaic ‘elitistism’ of the Right’s emphasis on earning one’s place in the sun, there is surely much room for negotiation.

Even though India has clearly failed to deliver growth and equality through a lengthy pursuit of socialist policies, the Left, broadly speaking, is unrepentant. They portray the BJP/NDA as its opposite, and see its pursuit GDP growth as a form of ‘crony capitalism’, an immoral credo, designed to only further enrich the rich.  

On their part, the Leftists prefer extensive welfare, vast populism, paid for via deficit financing. They  are  blithely unconcerned about the possibility of such policies bankrupting the country, while still failing to lift people out of their misery.

But, when this then pauperised country,  was forced to undertake the first stage of economic reform, at World Bank dictation, it tasted high growth for the first time. This inadvertently created a sizeable middle class, today almost as numerically populous as the poor.

The hope of the Right leaning ‘Vikas’ brigade now hangs on the aspirations of this resurgent middle class, over 300 million strong.  It is a constituency that was almost non-existent in 1947, and smallish, even in 1991.

The present backlash comes from sections of the political leadership not yet convinced that Modi’s soft capitalism will ever give them their electoral space in the sun. To the socialist, poverty is good politics and prosperity may mean political suicide.

These worthies do not want to go forward to a prosperous post Deng-like era like China.  Instead, they want to go back to the future of their glory days, and never mind the consequences. Only the voter can set them right, but for that to happen, they have to see things for what they really are.

For: Swarajyamag.com

(1,502 words)

February 5, 2015

Gautam Mukherjee

Revival Of The Socialist Legitimate

Revival of the Socialist Legitimate

A strange phenomenon is hovering on the near horizon. An upstart of a rag-tag band, of  roughly assembled misfits, calling itself a political party, its name purloined from erstwhile Rahul Gandhi- speak; is about to feast off the bones of the Congress and the over- ambitious BSP, which too once wanted to garnish its provincial DNA from Uttar Pradesh.

The Delhi Assembly elections, due to take place on the 7^th ,could well throw up a David vanquishes Goliath verdict. The David may be precocious, populist, and dictatorial at the same time, but is, as  things stand, evidently on a winning streak. 

The citizens of Delhi could be waking up on the 10^th of February 2015,to the prospect of an AAP Government. It could be a paanch saal Kejriwal  predicament, replete  with a simple majority on its own; if the current Opinion Polls, all saying so, are to be trusted.

The AAP has allegedly gained a startling momentum and hard to believe stature, quite suddenly, in a sleeper action, before anyone could properly figure out why.

And this, over just the last fortnight of campaigning. It is, as if, the harder BJP tried to win, the stronger AAP became, almost in direct and inverse proportion.

Of course, the polls could be wrong, and even cynically motivated. This more so because the erstwhile powers that were, can see themselves sinking like a stone.  But, most analysts agree that the AAP holds a strong, even magnetic appeal, for the incipient Socialist, longing for the welfare politics of the Congress, the migrant poor- eking out a living on the margins of this city-state; and the masses of BJP-rejecting people from the minorities.

All these folk, many of whom live cheek by jowl in warrens and juggi/jhompri clusters; and their dogmatic Leftist intellectual cousins, many firmly middle class, think they have found a saviour in Arvind Kejriwal, AAP’s highly articulate convenor and CM candidate.

This angry bunch, constituting as many as 60% of the registered voters, have watched the BJP win and rule the roost over these last few months,  but with increasing distaste; this  not only for Modi and his triumphalist Government, but also the fringe Hindutva elements  and their antediluvian antics.

They want to roll back the Modi Wave, and think they have found the perfect broom to achieve the striking of a first blow.A feisty set of extremely ordinary people that make up the AAP leadership, have been building up a most unlikely and wildly populist challenge to the Modi/Shah juggernaut. A juggernaut that has been either sweeping, or dominating, all the state assembly polls so far, ever since its spectacular win at the Centre last May.

But if the almost amateurish and hardly two-year-old AAP, wins a majority in Delhi, that too on its own, it has to be acknowledged as quite an achievement. It would have done so, after all, with comparatively meagre resources, an organisation riddled with defections, a contradictory and confused pitch, and dubious, doubtful, shrill, holier-than-thou morals. And it would have won, even after it lost badly in the Lok Sabha elections of 2014, and made a mess of its 49 day rule in Delhi in 2013, before that. And yet, astoundingly, here they might be!

AAP’s victory, if that is what happens when the results come on the 10^th, will breathe fresh life into the nation-wide Opposition, fragmented into many entities, reduced to pieces, all reeling from their electoral losses, that have heretofore pushed  them firmly into the margins.  

It will seem like the beginning of the end of the Modi Wave, a new wheel in time, apart from that which seems to have gripped the country over the last year or so.

Delhi is only a quasi-state as yet, though Kejriwal and cohorts, dharnabaazes extraordinaire, will not let it rest. But being the capital of the nation, it enjoys disproportionate significance. And it matters who is ostensibly running it.

Kejriwal will not be able to bully Prime Minister Modi, but it is enough that he can go to Punjab and bully BJP’s ally SAD - about its track record on drug-trafficking and consumption. It is also expected to win in Punjab as a follow on, if it wins in Delhi.

Many others will rally behind the AAP. The Congress perhaps already has, along with other more or less Leftist parties. These include the SP, BSP, JD(U) and Lalu Prasad’s JLD. The merger in process of many of these UP and Bihar based parties, anticipating  assembly elections of their own, may well be thrown over, in favour of a looser coalition that could coordinate poll strategy.

A merger, on the anvil, is problematic, because of too many generals and not enough lieutenants. Also, because most regional parties are essentially closed- end family concerns, and cannot indulge in any inner party democracy beyond a point.

But Kejriwal and the AAP will grow in stature in the midst of all this, for being honest to goodness Giant Killers. So, unless the entire prognosis goes horribly wrong for AAP on election- day 7^th February, the Party is on track for a spectacular ascendancy.

In some ways, this election is already being called before it has taken place. But this kind of cocksureness is normally the stage-setting for spectacular upsets. If that happens, Arvind Kejriwal and friends will still sit in the Opposition benches, where they can be as vociferous as they like and probably end up doing some good, after all.

Congress, which has been practically written off, must truly prove to be supine, for this scheme to work. A little bit of a showing could have it cutting into the AAP vote, thereby benefitting BJP.

But if AAP forms the Delhi Government, and sits on the Treasury Benches in the Vidhan Sabha, what will it portend? A touch of Mamata Banerjee’s TMC will infest the air of Delhi perhaps. The underclasses will be melded into a political weapon, and there will be a demand for full statehood and control over the Delhi Police.

This will not be granted by the Modi Government, and so, there will be unrest. The populist redemptions will bankrupt the erstwhile prosperous city-state. Development works will have to be given short shrift.  

In the end, Arvind Kejriwal and friends will learn from experience that a quasi-state that lives on an allowance plus modest revenues that it can raise for itself, cannot get very far by being hostile to the Central Government that sits atop it. And if  AAP loses, it will gradually die on the vine, and take the dream of socialism reviving with it to the ether.

For: The Pioneer

(1,104 words)

3^rd February, 2015

Gautam Mukherjee

RBI Deepens And Widens Debt Market

RBI Deepens And Widens Debt Markets In Lower Interest Regime

The RBI continued with its trademarked cautious version of quantitative easing; in its latest review on February 3^rd, 2015. The Reserve Bank didn’t cut the headline policy rate, maintained, as in January, at 7.75%. And the CRR (Cash reserve ratio) stayed put at 4% too.

Market analysts still expect at least 100bps cut in the ‘repo rate’ through 2015, with some foreign analysts thinking it could be as much as 150 bps. Others still think it will be 200bps, but spread over till the end of 2016. This would represent a lowering of the policy rate to 6% by then.

This apparent stand-still mildly disappointed the stock markets overall, though the Bank Nifty fell hard, the bonds and debt market reacted with a thumbs down, along with the interest rate sensitive sectors. This, even though most analysts did not expect a rate cut this time.

Governor Rajan indicated he expected a ‘solid’ budget’, and ‘high-quality fiscal consolidation’, going forward.  It is true that the fiscal deficit is not yet tamed, and the targets agreed to by the Government for this fiscal look daunting. However, the PSU divestments ongoing will definitely help.

The CAD (Current Account Deficit) has fallen to 1.3% from over 3% last year, thanks to the 50% drop in the price of petroleum; and this is very encouraging for the lower interest rate regime. As is the CPI (Consumer Price Index) number, bettered to under 8% in January 2015, and expected to go to 6% or below, by January 2016.

So, to a great extent, the pace at which the headline interest rate will be lowered by the RBI will depend on the Modi Government’s reform agenda and early implementation of it. The RBI clearly plans to react to the data rather than to lead it.

The RBI did however cut the SLR (Statutory Liquidity Ratio) by 50 bps to 21.5% down from 22%. This is intended to free up some Rs. 40,000 crores in the hands of the banks, which RBI Governor, Raghuram Rajan, wants lent by them to worthy borrowers.

The RBI noted however, that the commercial banks have not, except for just three out of forty five, lowered their interest rates, after the first 25 bps repo rate cut on January 15^th. Bank profitability has been under pressure, and many of them carry substantial non-performing assets (NPA) on their books, including large monies lent to the under-performing infrastructure sector.

The Government, on its part, is trying to get the infrastructure projects, particularly in mining and power plants going again, and is keen that some $19 billion held in cash reserves or near cash reserves by PSU giants  Coal India, ONGC, NTPC, NMDC and BHEL, invest this money as soon as possible.

Coal India’s Chairman Sutirtha Bhattacharya, soon after his Rs. 22,600 crore stake sale, has indicated that it plans to invest substantially in railway tracks, wagons and machinery to tap deep-lying reserves.

This is particularly appropriate and will pump up GDP growth, because the FDI (Foreign direct investment) input for eight months of this fiscal is only in the region of $18.88 billion, much below desired levels.

The largest money flow into India is in FII (Foreign Institutional Investors) investment in Indian debt, where the Government bonds limit of $ 32 billion is fully subscribed, as is $ 32.5 billion of the $51 billion allowed into corporate debt.

It is here that the RBI has made some changes to encourage more investment. It has done away with a stipulation of a one year lock-in for infrastructure oriented corporate debt in favour of a no lock-in but three year residual maturity paper. This should help attract FII subscription up to the $51 billion limit in corporate debt paper.

The RBI has also created a greater flexibility in the area of hedging interest rates in the debt market. It now allows cash settlement in interest rate futures (IRF) contracts on the medium term 5-7 year segment, which is also the most highly traded. It earlier allowed FIIs into cash settlements in the 10 year and 13-15 year Government Securities only.

The FIIs are clamouring for higher limits for their permissible investment in Government Securities in particular, but this is still pending.

Encouraged by our buoyant foreign currency reserves ($322.135 billion in January 2015), the RBI has also allowed both domestic and FIIs to take positions up to $ 15 million in exchange traded currency derivatives, per exchange, and without involving underlying exposure. This is for the US dollar- Indian Rupee (INR). In other currencies, the Euro-INR, the Pound Sterling GPB-INR and the Japanese Yen-INR, the domestic institutions and FIIs have been allowed to take the equivalent of $5 million per exchange without undertaking underlying exposure.  Players willing to take underlying exposure can take on larger exchanges as well.  

The RBI has further responded to a $6.8 billion increase in foreign exchange reserves over just the last quarter, by increasing the investment limit abroad, permitted per annum, for each Indian citizen, to $ 250,000. This represents a $ 50,000 increase over the previous highest limit of $200,000, curtailed to as little as $ 75,000 in 2013, when the CAD was going out of control at the end of UPA 2.

(875 words)

February 3^rd, 2015

Gautam Mukherjee

Show Us The Money

 

Show Us The Money

Which countries, amongst the serious contenders, will get Modi’s investment motor running in 2015?  It’s probably a toss-up between Japan and China, rather than the US, despite the nuanced upgrading of India in the US scheme of things. Pledges of over $ 55 billion have been made by the former two already. The US has offered a symbolic $ 4 billion and a bushel-full of weighty promises.

The Indo-American relationship has better atmospherics but is still processing the evolving geopolitics. The follow- through in common- or-garden business, particularly manufacturing, has to come company to company, and will involve extensive negotiation.

Likewise, the bilateral engagement, in order to bear fruit, in the now promising military manufacturing and the nuclear power sectors, though both are highly privatised too, must be reinforced in these last two years of the Obama era, and into the new administration.

Japanese Prime Minister Shinzo Abe has recently won snap elections held as a perceived referendum on his policies. And Japan has already made the most by way of infrastructure/manufacturing investments in India, followed, unsung, by South Korea. This is most visible in the Delhi Metro and in the Delhi-Mumbai Industrial Corridor. If Japan now puts in a large dollop of the $35 billion it has promised, it will quickly go to the top of the FDI charts.

China has trillions in investible reserves, and could, of course, overtake Japan quite easily. The compelling difference in basic manufacturing wage levels could be  persuasive, Indian hourly wages are now at 0.92 cents an hour, compared to China’s $3.52, according to Boston Consulting Group.  Other countries, such as Vietnam and Indonesia also offer low wages, but they do not have India’s size, domestic market, deep labour force, or sustainable rate of growth. All this has made China reclassify its dealings with India under the ‘major- country relations’ tag.

And if enough is done, partially with long-term funds invested by Japan and China, to turn Indian industrial corridors to support international manufacturing, then India could indeed become a manufacturing hub to reckon with.

This would involve all that is partially completed and very much on the anvil: super highways, airports, cargo-handling, fast trains, smart cities, cyber backbones, in addition to the stable and ample provision of electricity, water, land, conducive laws, low taxes etc.

Gujarat, under Modi, managed to ramp up manufacturing over the last 13 years, till it accounts for 28% of its GDP, against the national average of just 13%. It has proved to be a major driver of worthy employment and many lateral economic benefits. And since the same man is in charge at the Centre now, the chances of this happening on a more widespread basis are very good.

India is likely to see at least a 7% growth rate in 2015, per the revised calculation norms of our statisticians, along with lower interest rates, lower inflation still and reviving business and industry.

China and Japan know they could very well produce some items cheaper in India. And if these manufactured goods are carefully selected so that they are largely consumed here,  it is even better.

A key area could be in solar power, with India hungry for alternative energy sources. It is also not inconceivable, though we have generally turned to Russia, the US and Israel for this, that both China and Japan could get involved in the manufacture of military and railway equipment as well.

There are also compelling economic reasons of their own for China and Japan to come to India to manufacture. Japan needs to grow via third country investments/ventures because its domestic situation is mired in stagflation. China has a ‘cooling’ and slowing economy after 30 years of high growth. It now suffers from inadequate domestic demand, drastically slowed exports to the US and Europe, and much idle infrastructure building and manufacturing capacity/know-how.

India offers a high capacity to absorb opportunity to all comers, and has plenty of natural resources including thorium, iron ore, bauxite, coal and so on, the value-addition to which, could make things interesting.   

The most immediate benefit of India drawing closer to America and vice versa, is that it exerts a certain level of security pressure in its context with China. We won’t be so frequently bullied and the border problems may well be catalysed into a solution.

But, US policy, similar to Modi’s foreign policy initiatives, strives to separate geopolitical adjustments from commerce. Japan and China can, and will, simultaneously contribute, for their mutual benefit, and ours, in India.  

US bilateral trade with China today stands at $ 500 billion. The India-China figure is at some 12% of it and this too is highly skewed in China’s favour. China has invested only $ 1 billion in FDI so far. This needs to rise exponentially if China would be benefitted from a quarter century of India’s development going forward.  

 (811 words)

February 2^nd, 2015
Gautam Mukherjee