Tuesday, March 6, 2018

Venal Politico-Business Nexus & Plunder Of The PSU Banking System

Venal Politico-Business Nexus & Plunder Of The PSU Banking System

The State Bank of India, today’s public sector banking mother-ship, was the former Imperial Bank of India. It was the first to be summarily nationalized by the Nehru administration in 1955. Justifications for bank nationalisation include promotion of “social welfare, controlling private monopolies, expansion of banking, reducing regional imbalances and priority sector lending”.

Prime Minister Indira Gandhi, nationalized 14 banks in 1969. And again, another five of them, in post-Emergency 1980.

All this, in a frenzy of misguided socialist inspiration that never yielded more than 2% growth in GDP per annum, for five decades or more. But banking was not the only sector suborned to work for “social upliftment”, rather than “neo-colonial” profit.

The entire system and administration, including the Indian Administrative Service(IAS), the Judiciary, and the Planning Commission, was harnessed to promote Socialism.

Combined with the peculiar restrictiveness of the infamous Licence-Permit Raj, it was very difficult to be entrepreneurial indeed. At least, till the economy was first-stage liberalised in 1991. And this too was forced on the country due to a foreign exchange cum balance of payments crisis that hit the economy.

But quite soon after the advent of nationalisation, the record began to show, the public sector banking system (PSU banks), was disproportionately serving a witch’s brew of politicians and their crony businessmen. This, alongside the richer farmers and fixers, rather than the impoverished - with rural branches, loan melas, and the like. This distortion between intent and practice has not been resolved to date.

Gradually, as the banking pie grew, the farmers ended up with a small slice of PSU banking loans, and businessmen, sometimes proxying for the enabling politicians, got the lion’s share.

And as any bribe-giver will tell you-once he has paid-off banker and politician alike, for the money given out, he’s not about to give it back. The larger farmer, not to be outdone by his rich co-borrowers, also started merrily defaulting on those loans that were not wiped out by a vote-seeking government. The landless and marginal farmers, sincere about their debts, routinely commit suicide when unable to pay back what they owe.

Tax-payer money and government debt has been utilized meanwhile, without a by-your-leave, or any serious attempt to fix responsibility or punish the guilty, to recapitalize over Rs 1.5 lakh crores, spread over the last 30 years.

But now, thanks to the momentum and scale of plunder during the UPA decade between 2004-14, the banks will need a minimum transfusion of over Rs. 2 lakh crores. This is to partly amortise over Rs. 10 lakh crores ( $150 million), in “non-performing assets” (NPAs). Nearly 80% of these list private companies as the borrowers. These were exuberantly loaned large sums without adequate scrutiny or safeguards, in the boom years between 2000 and 2008.

When the tide went out, after the economic slowdown post 2011, the defaulters turned out to have come from textile, aviation, mining and infrastructure sectors. Basic metals had 45.8% gone bad. Cement had 34.6% in bad debt.

In 2016-17, the Modi government wrote-off PSU bank loans worth Rs. 81, 683 crores with the bland assurance that borrowers of these loans would continue to be liable for their payment.

Despite the number of sizeable scams and defaults flushed out of late, it is still a tenth or so of the entire loan book.  The PSU banks, could have, when all is tallied, bad debts at 10 -12%. It does place India with the second highest ratio of NPAs even at a 9.6% assessed so far. Only Italy has a worse figure at 16.4%. A small country like Greece has 36.3%. Ukraine has 30.5%. China claims to have just 1%  in NPAs, but this is doubtful given its internal debt at 2.5 times its $ 12-15 trillion GDP.

Europe saw a number of near sovereign collapses post 2008. The bailouts have been legion- at the rate of billions of dollars per month and zero interest rates. Otherwise the US would have experienced a second Great Depression, and the EU would have broken up. It has, in any case, taken a lateral casualty, in the form of Brexit that threatens, even now, to tear apart the United Kingdom.

“Moral Hazard”, despite its merits, was not thought to be a viable argument, in order to save the world economy. The malaise had spread too far and wide into the real economy to withstand the crack of a whip.

In India too, we are fortunate that we have the wherewithal to both absorb such blows, and move on to a better tomorrow. This is not to say the government is not making every effort to both recover monies and catch/punish the culprits.

All things taken together, this is an undeclared crisis. It is, after all, a vast sum to lose because of criminal neglect and collusive corruption. But, at the same time, it is mitigated by an economy grown to $2.5 trillion, with a GDP growth rate of over 7% per annum - the fastest for a major economy in the world.

One that is likely to double to $5 trillion by 2025, and become the 3rd largest from a current 5th largest. The bad debt problem, causing justifiable outrage because of a score of rich company promoters responsible, is not yet, in absolute terms, alarming. It won’t capsize India’s economic boat.

The PSU banks have strayed very far from their founding objectives. That it now accounts for 80% of banking credit in India is another reason why it is central to the problem.

Huge dubious loans have stayed hidden for years, as politicians, bureaucrats, bankers and borrowers colluded to restructure debt, kicking the can down the road. But, in 2015, the Reserve Bank of India (RBI) issued guidelines that forced banks to own up. Still some are still trying to dodge the dictat, and have been censured and fined heavily, a couple of them, very recently.

Private and foreign banks, albeit fewer in number, also have their NPAs in the Rs.1 lakh crore region, suggesting much better loan-vetting and governance, and presumably, reduced levels of corruption/collusion. But the recent Nirav Modi/Mehul Choksi scam has not spared them either.

Would this bad debt balloon have gone up if the PSU banking sector stayed away from private enterprise? Would the reckless lending and subversion of banking systems have shifted to the private banking universe instead? It is hard to say. The borrow-and-spend boom in the West lasted twenty years, and when the party ended, it produced a hangover that has already lasted a decade too.

 India’s NPAs, bad as they are, did not come via bad property mortgages and fraudulent derivatives to trade in. Yet, everything looked very profitable in the West too, right up to the edge of the precipice.

Theoretically, the cure for the Indian PSU banking malaise could still be privatization, if only to keep the politicians out of the till. Any amount of regulatory tightening in reaction to the present goings on cannot keep the discretionary powers of  politicians at bay.
Instead, over-regulation is likely to dry up credit, thereby damaging the growth of the economy. Or it would shift the action to private banks and the stock/debt market instead. That could, of course, be a good thing.

On the fixit side of things, there is talk of using big data analytics and constant technology upgradation for automatic machine monitoring.

Reform of the PSU banking sector must happen. Some analysts say, keep the State Bank of India, to go back to basics – priority sector lending, distribution of subsidies, loans to the poor, etc. but get shot of the rest.

The politicians, beyond lip-service, won’t want to lose the funding and patronage the PSU banking system affords. They will want to wait for these scandals to blow over for resumption of business as usual. But if this Prime Minister can attempt the privatization of Air India, he can do likewise for the PSU banks too.

A proportion of the current NPAs, may well be recovered - though the banks are themselves reluctant to take a sharp ‘haircut”. By untangling stuck infrastructure projects, against which there are substantial borrowings, there will be substantial relief. Also, the vigorous implementation of the new bankruptcy law aimed at seizing unencumbered assets, and the Fugitive Defaulters Bill, about to be enacted, will allow the confiscation of every asset of those who run away.

For: The Sunday Guardian
(1,396 words)
March 7th, 2018
Gautam Mukherjee

Saturday, March 3, 2018

BJP Supporters Eat Beef, Pork, Worship In Churches

BJP Supporters Eat Beef, Pork, Worship In Churches

When Prime Minister Narendra Modi paused his victory speech at the mint-new BJP Headquarters  in New Delhi at the sound of the evening Azaan, it wasn’t for the first time that he has done it. It is his silent but eloquent way of conveying that this government respects Muslims - even if it doesn’t hold Iftar parties or wear skull caps to say so.

And it subliminally suggests to the biggest minority of some 170 million Indians, come vote for the BJP in the world’s most populous democracy, you have nothing to fear.

Leading Muslim nations of the world, irrespective of their own rivalries and differences, have joined the West and the Jewish State too in recognizing the exceptional energy and leadership provided by this current Prime Minister of India.

His Hindu religion and practice, including the fasting during state visits during Navratras, is not seen as an impediment. Hinduism does not, after all, annoy. All talk of Hindu terrorism has been unmasked as a sham. It does not have a reputation for aggression, evangelism, or territorial lust. Consequently, India is welcome as friend, ally, and interlocutor, in most parts of this troubled world.

Perhaps, the minorities in India, nurtured on division, need to update their attitudes and take a cue from this warm reception Modi gets in many countries abroad. And maybe the North Eastern Christians, modern by temperament, have already moved on.

However, while Muslim women are increasingly voting for the BJP, particularly after its support for the anti-triple talaq legislation; the men, particularly in the Sunni majority, have yet to overcome their prejudices.

They need to recognize the present reality of the only national party left standing. The Shias have been far more forthcoming for some time now. This has been both prescient and advantageous for them.

Long-standing minority opposition to the BJP is now self-defeating. The political parties that play that kind of politics have dwindled into nothing. The TMC of West Bengal, the only substantial minority enabled Modi-basher left,  is changing track as fast as it can. It is afraid that Muslim appeasement and encouragement of illegal immigration from Bangladesh may not work in future. A consolidation of the Hindu vote, and a backlash, as in Tripura, could cook its goose too.

The Communists, in cahoots with Islamists, in Kerala, have their faces to the last of their walls. And for all Muslims in the country, radicalised or otherwise, there is the realisation that, refusing to vote for BJP/NDA will no longer be enough to stop it in its tracks.
The BJP intends to usher in a Uniform Civil Code. It will build a Ram Temple in Ayodhya given a favourable court verdict. It will legislatively eliminate the historical distortion of Article 370 in J&K. All this and more, by way of levelling the playing field, with, or without, Muslim support.

The death of appeasement politics, attended by its pseudo-secular hypocrisies, is well underway. The train has left the station. There is only some catching up to do for those who won’t want to be left behind.

The Christians, now well beyond those in Goa, watching the march of electoral victories that has taken the NDA ruled states to 22 out of 29, have signaled recognition of this fact.
They refuse to be left out of the Vikas juggernaut. Particularly, when the now pathetically reduced Congress Party and its allies have nothing left to offer them.

Talk of uprooting the BJP at the next general elections in 2019 is not being supported by the BJP’s burgeoning vote shares and formidable electoral organisation.
The Christians know this now, and have acted upon their knowledge. It remains for the Muslims to follow suit.

Modi was addressing jubilant BJP workers and remembering those karyakartas from the RSS, who were martyred on the killing fields of Tripura. He was thanking the tens of thousands who worked for the spectacular electoral wins in the North East, when he paused for the Azaan. It was, like the speech itself, televised all over the country.

The election results announced on the 3rd of March extended the day and full moon Holi celebrations by yet another. Rightly so, because  it was to celebrate a season of firsts in all three states polled.

BJP along with its ally IPFT, routed the entrenched Communists in Hindu majority Tripura. It also won decisively in Christian Nagaland, alongside its ally NDPP, reducing Congress to a zero tally. And it is well on its way to supporting a coalition government with Conrad Sangma’s NPP party (which includes sister Agatha and brother James as MLAs), in Christian Meghalaya as well.

Conrad Sangma, the likely new Chief Minister of Meghalaya, has made it clear he will not join hands with Congress to form a government. His father, the late Purno Sangma, the highly respected former Lok Sabha Speaker, was insulted, treated shabbily by Congress, and expelled. This, for daring to raise his voice against the legitimacy of Sonia Gandhi.
Amongst many other significances being commented on, these spectacular shifts in secular voter behavior in the North East, have put paid to the virulent Opposition propaganda.

That the “majoritarian” and  “communal” Bharatiya Janata Party cannot win outside the Hindu northern “cow belt”. That it wants to tell people what it can eat and how it may worship. That it seeks to impose vegetarianism, and certainly, a beef/pork ban on the whole country. In addition to its narrow version of the Hindu dharma. Narrow Hindutva, as Shashi Tharoor would have it, in place of the inclusiveness and vastness of Hinduism.

In the highly evangelized Christian North East, funded by foreign Churches and the Vatican, none of its surging number of Baptist and Catholic voters for BJP have paid heed though.The Church bigwigs on their part, repeatedly raised the bogey of religious interference, and exhorted its flock not to vote for the Lotus.

Regardless of this, the Saffron Party has been believed and welcomed by the people. Its promise of tolerance, harmony, peace, and Vikas has been accepted at face value. Its efforts at integrating the North East with more developed parts of the country have been noted. The Lotus has now bloomed in 6 out of the 7 North Eastern States. The last, Mizoram, will decide when it too goes to the polls.

The BJP won in partially Christian Goa, for the first time, years ago. There too, it did not seek to interfere in the local food and beverage habits, or the distinct customs of the former Portuguese colony, which is 40% beef/pork eating Catholic.  

But when there was just one such state in its line-up, it was easier for the Opposition to project the BJP live-and- let-live doctrine as an insincere aberration, likely to be eroded in time.

But when the BJP wrested power in Arunachal Pradesh from Congress, it did not interfere with the customs of its mostly Buddhist population either. Ditto when it formed a coalition government in Christian Manipur.

So does all this signal the end of the mileage the Opposition can extract from pseudo-secularism? How can it gain traction if the demonization of a so called Hindu revivalist party no longer frightens the horses?

And when the ubiquitous BJP voter goes to pray in Temple, Church, Gurdwara, Synagogue, and Mosque alike?

For: SirfNews
(1,215 words)
March 4, 2018
Gautam Mukherjee

Friday, February 23, 2018



TITLE: FROM LEHMAN TO DEMONETISATION-A  Decade Of Disruptions, Reforms  And Misadventures

Taming the Bucking Bronco of Bad Debts

Tamal Bandyopadhyay, the author of this book composed of selections from his columns from 2008 onwards, writes for The Hindustan Times Group’s pink paper Mint. This book is divided into two sections- the first on banking and its concerns ex 2008. 

Bandyopadhyay chronicles the various dilemmas and conundrums of a banking sector trying to stay solvent despite regulatory constraints like the non-interest earning  cash reserve ratio (CRR), tiny deposit retail banking which loses money, being besieged by wilful defaulters, and the pressures of politically dictated but massive loan waivers.

The second section has engaging pen portraits of some of the larger figures in the banking space that he encountered over a 20 year career. The point of the latter is probably a thank you from the author for the goodwill he experienced from many of them. But, as a reader, one is left wondering why the Indian banking sector is not bigger and much better than it is, given all this apparently stellar leadership. They all seem to be propped up by the relative size and stature of their office, with the exception of the Goldman Sachs India chief written up in the back of this section. In the end, size matters.  

In turn, Tamal Bandyopadhyay has long been recognized by the movers and shakers in section two of this book, as one of the country’s finest business journalists.

Bandyopadhyay has also worked in Business Standard earlier, and has written books on both the Sahara Group and Bandhan Bank. He brings his university degree in English literature to bear on complex financial matters, albeit with the help of good research assistants. This makes his columns not only interesting and readable, but clear and lucid to the layman.

And thanks to his selection, most of the content of this book remains relevant,  even though the reader  is looking at essays in the rear view mirror. These range from the 2008 financial crisis, India’s response to it, subsequent events right up to the 2016 demonetization , which he thinks did hit black money hard, but for how long?

Indian banking today appears to be paying the price of the low interest rates, exuberant lending, and lax regulatory systems,  including the expedient of loan recasting, over the last decade.

Climbing steadily, the discovered gross non-performing assets were, in 2017, already at 9.6% or around Rs.10 lakh crores, dwarfing most union budget allocations.

With even stricter prescriptions imposed, against rolled-over loans, bad loans under Rs. 100 crores, regulatory breaches, runaway scamsters, this percentage could climb well into double digits, and stay there for a while.

This won’t destroy the banking system by itself, particularly because it receives regular doses of recapitalization using tax payer money, but it does cast a pall over its functioning .
But, too much regulatory and supervisory caution in the aftermath, will also cripple lending. And this flies in the face of the growth necessary to lift India out of emerging nation status.

The government’s recent and unprecedented efforts to access untroubled and unencumbered assets and businesses of willful defaulters, via a clutch of new and strengthened laws, will certainly yield results, and haul in some of the monies owed.
But, a lot of the bad debt is not wilful default. This particularly applies to the power and infrastructure sectors, where borrowers are in the soup because of governance related blockages including environmental objections, adverse litigation, non-payment of contractors, and land acquisition. And remedy means the rescue and resuscitation of various projects into economic viability and completion by untangling all this. Again, the government is on the job, and getting results, but not as fast as one would have liked.
At least one devil in the detail, that of inflation, as high as 13% in 2009, has been tamed to under 5% today. Provided oil prices do not skyrocket afresh, low inflation should prevent any increase in interest rates.

The fiscal deficit too, for all the challenges this government is facing, is stubbornly being held down to under 4%. And the Indian economy is the fastest growing major economy in the world, at around 7.5% GDP growth, projected in fiscal 2018. It is also about to become the 5th largest economy in absolute terms, overtaking, if only just, Britain and France, to secure its spot.

Bandyopadhyay expects, in his epilogue to the book, the only bit that talks of the future, for PSU banking to shrink to 60% of the market share, down from 70%, by 2025.
But is there not a case for privatization of the entire sector, given that government owned banks seem to have become a free source of public money via a nexus between crooked businessmen   and politicians?

Bandopadhyay expects the non-banking finance companies ( NBFCs), regulated “lightly”, to concentrate on financing affordable housing going forward. Well, at least there is a tangible asset to hypothecate in this!  Very interestingly, he points out that the Indian mortgage market is small yet, accounting for just 9% of GDP at Rs. 12 trillion, growing at about 19% per annum.

This is in contrast to the US and the UK where it is 81% and 88%  of their GDP. China is at double of India, and in small countries  such as Denmark has a mortgage market  at 104% of GDP.

As for technology becoming all pervasive, Bandopadhyay holds out the argument that “Bharat” if not India, will still need interactive banking with human interface for a period much beyond 2025.

This is a collector’s item of a book,  as YV Reddy, the former RBI Governor put it, and well worth a read, both for its historicity and its prescience.

For: The Sunday Pioneer BOOKS
(939 words)
February 23, 2018
Gautam Mukherjee

Wednesday, February 21, 2018




Collusive Corruption & Flouting The Law

This collection   of 16 essays, written by the staffers of Niti Aayog, is called an anthology, as in poetry, by Rupa, its publisher. However, it deals with the cancer of black money, which has penetrated every nook and cranny of the economy.

Indeed, most other countries have a parallel cash economy, but rarely on this scale, or to this extent. This book was published in late 2017, and was probably intended as a set of theoretical prescriptions think- tank style- that is, neither radical, nor controversial.  

Given the goings on in the corporate and PSU banking sector, being revealed in all its shocking and seamy detail, a book like this has suddenly gained greater relevance and topicality.

The brazen diamentaire and disposable pen scams raging like a storm outside, threaten to crash the PSU banking system. It is already reeling from an unprecedented Rs. 10 lakh crores in bad debts, incurred during the preceding UPA rule from 2004-2014.  

But this government is apparently reluctant to act with aggression against the perpetrators. It is awkward and inept when it does, ponderous, busy shifting the blame to expendable minor factotums and the previous dispensation.

The links, for example between the Nirav Modi-Mehul Choksi families and the Ambanis is surely embarrassing. They  have been beneficiaries of collateral free monies running into thousands of crores from the government controlled PSU banks, quite a lot of it in the last 4 years during the currency of this regime. Likewise, there are the Kothari family’s links with the Adanis.

The rot of systemic corruption runs deep. The fountainhead of black money generation in the Indian economy is, of course, the political process. This is explored in an essay by one of the two editors of this book, Kishore Desai.

The elected representatives of the Government of India come to power using truck loads of unaccounted for, tax-evaded cash. While something is being done about it by this administration, particularly in the area of political donations- it is unlikely to prevent massive cash usage coming straight from candidates in future elections too. This, in gross violation of prescribed overall campaign fund limits, let alone the ban on cash for the purpose.

The Real Estate sector can, and does, absorb large tranches of cash.  Again it starts at the political level. Land prices can be manipulated ruthlessly by politicians in power who have the authority to make their fortunes by changing “land-use” norms. They can convert agricultural land around expanding cities for example, valued generally by the acre or hectare, into commercial, residential, institutional land, at the stroke of a pen.

Politicians can renotify pristine areas into new cities, as in the green-field capital of Andhra Pradesh. This turns its land value to be calculated in square yards and even square feet, rocketing up its price.

It is the easiest way for State Chief Ministers and their political parties to accumulate fabulous but unaccounted for wealth in cash. This by simply forming a nexus with builders at the detrimental expense of the original landowners.

Bibek Debroy, one of the editors of this book, smoothly meditates on this outrage, and ways to mitigate it, not, one might add, with very much conviction. He writes on the digitization of land records at greater length than the scandal surrounding CLUs.

Various statistics cited by this book are plainly horrific. Misinvoicing, says one chapter, “cost the country more than $40 billion in 2008”.  So imagine the amount 10 years later in 2018.

On the plus-side, it is more difficult for all except the smallest enterprises, which are exempted, to get away with invoice manipulation, since the advent of GST. It is, amongst other things, a transparent online process for indirect taxation.

Evasion of taxes, gaming of systems, bribery, subversion, forgery, fraud, scamming and larceny are rampant everywhere though. The Prevention of Corruption Act 1988, and its amended version from 2013, is distinguished by its loopholes and has as yet, scalped very few. Likewise the Benami Properties Act with new teeth, which should have garnered perhaps Rs. 100,000 crores worth  by now. So far, the government proudly announces, it has confiscated Rs. 3,500 crores worth.

Executive government agencies, such as the Central Vigilance Commission (CVA), the Enforcement Directorate (ED), the Central Bureau of Investigation (FBI), the Central Board of Direct Taxation (CBDT) - even the Intelligence Bureau (IB), the National Investigative Agency (NIA), and the Research and Analysis Win g (RaW), turn in indifferent results, often marked by sub-standard work that doesn’t stand up in court.
The three arms of government- the Executive, the Legislature, and the Judiciary, are also none too efficient.

The Judiciary is not only extremely over-burdened, increasingly biddable with inducements, and slow, but often resorts to copping out altogether by “reserving” its judgements.

The Indian Constitution, probably the longest, most disjointed and complicated in the world, is often subverted in practice and cynically used by rival politicians as a battering ram.

Attempts such as the Lok Pal, the Lok Ayukta, and the Right to Information Act  (RTI), all designed to promote greater accountability in public life, have also not succeeded to any appreciable degree either.

The problem everywhere is the near immunity from being held to account built-in by the permanent cadres of the government, its bureaucracy, as well as the political classes.
It is very difficult, except in theory, for the citizen to do much beyond vote when elections come around, at least as far as the politicians go, and then get out of the way till the next time.

This book helps mildly raise the pertinent issues and the pervasiveness of  the black economy. It is up to the evolution of our education, awareness and democracy however, to lift this country out of the grip of its more feral elements.

For: The Sunday Pioneer, BOOKS
(963 words)
February 21, 2018
Gautam Mukherjee

Monday, February 19, 2018

The Modi-Choksi-Kothari System Gaming:: Power Does Not Brook Weakness

The Modi –Choksi-Kothari System Gaming: Power Does Not Brook Weakness

Jimmy Carter, the millionaire Peanut Farmer- Physicist- Naval Officer- Governor   and one-term President of the US, from Plains, Georgia, projected weakness.

This despite his essential and almost improbable decency, for a politician. But  events as they unfolded told us that he couldn’t do that in the most powerful political office in the world and be forgiven for it. That is why Carter lost 49 out of 50 states to Republican Ronald Reagan in his second term campaign.

Of course, luck too, did not favour Carter, with the Iranian hostage crisis dragging on throughout the campaign. But it ended, ironically, almost as soon as Reagan was elected.
Carter wore cardigans and conducted televised fireside chats with the American people on folksy, largely non-political themes- rather like Indian Prime Minister Narendra Modi’s quaint Man-ki-Baat sessions on All India Radio (AIR).

Carter prayed frequently in public, and put his Baptist faith on display, just as Prime Minister Modi does, visiting an array of temples around the country and abroad.  Jimmy Carter spoke famously of lusting “many times” and committing adultery in “his heart” in a Playboy interview. Prime Minister Modi makes no comments whatsoever on sex, but he does speak up about the need to promote and preserve the “girl-child”.

The American people, despite Carter’s winning smile and Southern drawl, were not impressed. The Indian people, on their part, as the Modi administration completes 4 years, have long expected Narendra Modi to put a legion of corrupt people from the UPA in jail. Indeed BJP supporters cannot understand why Modi as PM is so timid. The electorally mauled Opposition, unable to believe its luck, counter attacked within months of May 2014, and have never stopped since.

Carter won his mandate as a Democrat President after Richard Nixon had gamed, quite unnecessarily, as it turned out, the American political system. Nixon escaped jail time by virtue of a presidential pardon from his mid-term successor President Ford, who was both unelected and dependent.

Nixon escaped a near impeachment in exchange for his resignation half way through his second term, which he had won handsomely, without any real help from the Watergate break-ins to the Democratic Party headquarters, that brought him down.

Modi’s timidity in office with an inexplicable surfeit of tolerance for corruption and scams from the UPA years has emboldened every crook, dacoit, and anti-social on his watch, to carry on regardless.

They have realized Modi’s sonorous bark on the hustings in 2013 and 2014 is actually a substitute for his non-existent bite as Prime Minister. Not only are corrupt people allowed to strut about abusing the BJP, the Sangh Parivar and the Prime Minister himself, but sedition, anti-nationalism, fringe organization atrocities, rapes, murders, including those that are politically motivated, insolent dissidence within the BJP, all appear to be treated as business as usual.

The challenges posed by a Rs. 30,000 crore systems failure in the PSU banking system brought about by Nirav Modi and Mehul Choksi, is yet another demonstration of this strange lack of consequence.

Things appear to be the same in Modi Raj, just as it was in the UPA years,  for the rich and well-connected.

There is quite a hue and cry after the offenders have fled abroad under the noses of this Government, and its sleuths, as did Vijay Mallya before this, and Lalit Modi before him. It remains to be seen whether they, or indeed any of them, are extradited back to India to answer for their multiple violations of a plethora of laws. These include money-laundering, shell companies, benami deals, round- tripping,  hawala using black money, over and under-invoicing, grand larceny, fraud, loan default, etc.

These crimes come on top of almost 10 lakh crores worth of bad debts racked up by a score of mostly private companies in the UPA years between 2004 and 2014. And now a Gutka businessman cum throw- away pen manufacturer from Kanpur, has just added a further Rs. 5,000 crores in defaulted on loans.  

The financial system rot in the nationalised banks is deep and almost endemic. Yet,  very little preemptive striking is being done by the Modi Government. It  seems content to hide behind the so called due process of the law. This even when it is well known that the legal system is over-burdened, broken in most parts, and extremely slow.

The investigative agencies such as the Enforcement Directorate (ED), The Central Bureau of Investigation (CBI), and so on, are leaky ships themselves, with informants and subverted operatives, whispering warnings, in cahoots with the thieves. Supervising Bureaucrats seem lethargic, demotivated, ignorant and deeply compromised. The political will and competence atop this ineffective edifice in the Home, Law, Finance, Company Law Ministries too is also sorely lacking. Ditto in the Reserve Bank of India (RBI).

While the Prime Minister and indeed the PMO cannot fairly be held responsible for the carelessness of various operational units and ministries directly tasked to look after the various checks and balances which are supposed to exist, he is the one who has to find a solution.

Almost everything, from the Indian Constitution, to the legal system, the perpetual electioneering, the judiciary, the functioning of parliament, the historical burdens of Article 370 and 35A, the battle readiness of the Armed Forces, is in need of reform and renewal. It is a formidable task, but even so, it can and must be tackled.

But while this Government has shown signs of being serious in this regard- the implementation of GST, the Bankruptcy Act, the Benami Act, the reformed Company Law, RERA, OROP is evidence, it is not being tough enough on those who break the law. It cannot afford to continue with this. The Indian people want to see the corrupt punished. Nothing less than that will do, if this Government’s leadership is not to meet the fate of one-term President Jimmy Carter.

For: SirfNews
(977 words)
February 19, 2018

Gautam Mukherjee

Monday, February 5, 2018

The Riches Of The 3rd Biggest Economy Underway Belong To all Indians

The Riches Of  The 3rd Biggest Economy Underway Belong to All Indians

Ten days after the budget proposals of  February 1st, it seems to be a blueprint for what the Modi Government proposes to deliver till 2024, and perhaps beyond. It is a game-changer because it has shifted the goal posts from lip-service to the poor and disadvantaged, to serious action.
Conventional political logic all this time had it that rural poverty, education, and
health are bottomless pits of want and thankless effort. It is best staved off at
election-time with  feudal mai-baap style doles and soaring rhetoric of the garibi hatao variety accompanied by a pogrom or two against the rich .

For a Government to take  the disadvantaged on squarely is both startling and revolutionary. To do so with a constructive programme of elevated farm prices, incentives and tax benefits to small and medium enterprise, senior citizen benefits, massive outlays for education, health, and a Rs. 5 lakh each  medical insurance programme for 500 million people is impressive by any standards and provides a wealth of talking points on the electoral stump. Indeed Modi’s rally at  Bengaluru showed a reenergized Prime Minister blowing hard on the electoral conch.

The  reach and transformational scale of the planning suggests it has envisaged at
least a 15 year run for the BJP led NDA.  It may seem audacious to think like this some 11 months before the next general election, given the noise, heat, abuse and derision from a panicked Opposition. But let us remember 15 years a modest ambition, in comparison to Jyoti Basu’s 30 plus year Left Front domination in West Bengal.

Meanwhile, this year, 2018, India is already expected to become the 5thbiggest economy in the world, just overtaking Britain and France.

For those woe-begone over the singular, faux Socialist focus on the disadvantaged, poor, and struggling, apparently ignoring the middle class and fat cats of business and industry, there is a need to rewind just a little bit.

Modi declared at Davos in his key-note address barely a week before, that he wanted his Government to devise mechanisms so that the Indian economy can double to $5 trillion in GDP by 2025. This would also make it the 3rd biggest economy in the world in just 8 years time.

Critics think that Modi forgot this as soon as he came off the mountaintop ski-resort  That he spoke of globalization being inevitable there but tightened the screws on all imports and even foreign car assembly in-country and in the budget. But,  the Government does have a resource crunch if it is to nearly  hold the line on the fiscal deficit.

But read between the lines, and place in context, and  there is reason for optimism. It is not just the softening tone of Chinese hectoring post our 10 state ASEAN showing at Republic Day on the 26th of January, flanked additionally by the Japanese Foreign Minister. Not only is trade sure to grow with this block, but military ties are also likely to proceed apace. Given the pressures felt at Karachi and Gwadur ports after the commissioning of Chabahar and the routing of Afghnistan’s trade through it, the Chinese have suddenly offered to discuss PoK in the context of the CPEC with us. There can’t be much in it, of course, because they will surely not decide to throw Pakistan under the bus like the Americans already have.

And the daily threats on Doklam have been suspended too as India begins to put paid to China’s takeover-the- backyard ambitions.

There are a couple of other pertinent domestic questions that appear in sequence. How do you fire up the engines of growth if you fail to catalyse a 50% rural population?

And what a state of medieval disgrace it is in, that it is headed towards delivering a single digit contribution to GDP, and a farming growth rate of  between 1-3% despite the Green and White Revolutions and producing surplus food for a population of 1.25 billion people, 3 times  over that at Independence.

As for cold chains and food processing- there is hardly anything visible above ground as yet despite talk of 50 food courts and the employment buzz around it.

However, along with the mega- push on infrastructure via Bharatmala and other road/port/connectivity development, analysts have been conceding, post budget, that more than 5 million of the annual ten million jobs needed could well be forthcoming from this. The Statistics Office has to update its matrix to capture this information along with other “informal” sector jobs.

Women are a major growth opportunity recognized by this Government. The Mudra Yojana has handed out Rs. 400,000 crores in micro loans without collateral to grass roots entrepreneurs , allocating 75% of it to women. This is on the pattern of the pioneering and wildly successful Grameen Bank of Bangladesh.

The liet motif of the coming general election could well be the anonymous pakoda seller( Mudra-financed) as aspirational mini entrepreneur. But to three- time Congress Finance Minister P Chidambaram, they are no more entrepreneurial than beggars.

Muslim women too are being liberated by this Government.Those opposed to the Triple Talaq Bill  are being overtaken by the community itself  signaling its willingness to make changes rather than have it rammed into law by the present Government.

The Opposition thinks talk of doubling farming income by 2022 and affordable housing for all by then, hundreds of smart cities, toilet-building in millions for the safety and dignity of rural women, not to mention major pushes given to the bottom of the pyramid in the budget, are all so many “jumlas”.  

That some work has already been completed on these missions has only served to infuriate them. They point out that it could be inflationary, and ask where is the money going to come from?

Caught out for patronizing the poor with handouts and not doing any empowering work for decades, the Opposition characterizes almost everything the Modi Government says and does as fraudulent.

The Finance Minister’s budget speech, the first since the implementation of GST, did not have to spend long talking about indirect taxes. Instead he spent an hour on rural India.GST, languishing for decades in the making, has been pushed through by this Government. Even as it is experiencing wobbles in the implementation presently, it has great long-term potential to deliver increasing amounts of revenue to the in a smooth and seamless manner. It will certainly become double that of the direct tax yields in due course, and make room for cuts in corporate and individual taxes, perhaps to align with the best ASEAN country practices.This is acknowledged, even by a sly Government baiter, the erstwhile RBI Governor Raghuram Rajan,  who was also at Davos.

But who can build Bharatmala, the renewed railways, the new ports, the bullet trains, new military hardware, naval ships and submarines, helicopters, planes, fighter aircraft, provide universal electricity, water, solar power, telecommunications, information technology solutions, cyber security, education and healthcare and so on, if not the other half of the population and its collaborators?

This applies to ISRO, space exploration, DRDO, Mazagaon Docks, expeditions to Antartica, UN peace-keeping, and the like too. None of these things can be neglected or put on hold. So the urban masses and classes will need to participate in this work. They may not be at the bottom of the pyramid, but they have the knowledge, the education , the know-how and the drive to meld it all together.

 The big problem, ever since this Government came to power in 2014 has been an inheritance of huge NPAs in the banking sector. These were partially due to collusion and lack of due diligence and political influence, but also because of a reckless borrowing programme and over leveraging of businesses.

When the economy began to slow in 2012 and 2013, despite a lot of liquidity from the years after the global financial crisis of  2008 pushing up the fiscal deficit figures, there was nowhere to run  to. Particularly, as Finance Minster Chidambaram, back as FM in 2012, raised interest rates to curb the deficit and severely cramped growth in the process.
The private sector is beginning to borrow again now, there is a 10% uptick. And the NPAs have been tackled to an extent via the tough bankruptcy law and Government recapitalization of banks. But can the bruised private sector drive a fresh growth surge? Not yet. And certainly not without Government help.

This budget, like many before it, should also begin to be viewed as an annual accounting exercise inherited from British times. Its delivery dates have been changed for swifter disbursements, and may be aligned with a calendar financial year in the future. The Railway Budget has been merged with it. It is slowly, steadily, and inevitably, giving way to diminishing returns. It is not a State of the Union address as in the US. Nor is it comprehensive and sacrosanct as a set of proposals and a financial bill.

The middle class needs to remember that they have already received a 5%  income tax rate applicable to 80% of all tax payers last year.  Of course, it is annoying to see that the parliamentarians have created a glide path to pay increases for themselves alright! And the 10% capital gains tax on equity may give way to indexing yet.

Worrying about a measly 7% rise in allocations to Defence is also not warranted. It is not the whole story, given the well known twin threats from Pakistan and China. The Government will step up to the plate with any monies required, even via foreign soft loans, and internal borrowing as necessary, but it will be off-budget.

India’s fiscal prudence is well regarded amongst emerging economies and receives regular praise from the ADB, IMF, the World Bank,  the BRICS Bank, and the international rating agencies. It  is able to secure loans as a responsible borrower from all the agencies it once took grants and aid from. It has a robust FDI input of over $ 60 billion and nearly $500 billion in foreign exchange reserves- both at the highest ever levels.

India is also a shareholder in some of these multilateral development lending agencies now.

The  move to strengthen the Bond Market by asking top corporate to invest in “A” rated bonds in addition to the “AA” and “AAA” is a dynamic parallel move. This is along with the intent to require 25% of all corporate borrowing to come from the Debt Market rather than exclusively from the Banks/ domestic/ foreign lending agencies.
 That the Government has exceeded its divestment target set last year is also a first, and it seems determined to sell Air India to the private sector along with a 49% foreign component.  

With the increasing moves to involve the private sector into areas that were once the sole preserve of the Government such as Defence manufacturing, things can only get bigger and better for them. It was once subordinated to the “commanding heights” of the PSU world but now,  we need perhaps, to look at not one, but 4 American companies, all in the IT space,- Google, Apple, Facebook, and Amazon, all nearing $1 trillion in valuation terms. They are worthy examples of what the private sector can do even when our entire GDP is at $2.5 trillion presently.

India already has the 6th largest number of billionaires in the world today, and inexorably, at a 7.5% or more growth rate per annum over the coming years, the future is glorious. We cannot therefore tolerate poverty in our midst because there is no excuse that can justify it.

It is the responsibility of our leadership to take this to heart and a prime minister who has come from humble beginnings has done so. Let the critics carp, and take a disjointed view of budget 2018.  The poor, the middle classes, and the rich, indeed the whole country, have a friend on Raisina Hill.

For: The Sunday Pioneer AGENDA cover story of 11th February 2018
(1,984 words)
February 5th, 2018

Gautam Mukherjee