Brand In Flight

Brand In Flight

Vijay Mallya must rue the day he got into the airline business. He could also be congratulating himself for handing over the entire can of worms to the 17 lending banks.

It is the banks who lent vast sums against inadequate and chimerical collateral, including a brand valuation of Rs. 4,100 crores arrived at  fancifully by Grant Thornton.

It is the banks who allegedly listened to the prods and whispered persuasions of powerful politicians.

It is they who sanctioned more later, even as things became untenable in 2010. They restructured the loans, accepting Mallya’s sop of a personal guarantee, accompanied by a nod and wink both from the finance ministry and the RBI.

And it is they who did nothing to recover monies, even as Kingfisher Airlines went down for the count by 2012.

Mallya, in turn, lost control of his flagship liquor company, along with all his houses in the company books, his Formula One and IPL teams.

His personal honour is compromised in front of thousands of unpaid employees to the tune of about Rs. 1,000 crores, including undeposited TDS.  

He still owns shares, 4% in United Spirits Ltd. (USL) valued at about Rs. 2,400 crores, and 32% in United Breweries Limited (UBL), valued at around 6,700 crores.

Mallya may however be off the hook for all intents and purposes. Under present laws, the outstanding is business debt, incurred in good faith amidst hopes of revival, attributable to the risks and vagaries.  

So much so, that the investigating agencies are now searching for one or more criminal cases to pin on Mallya, money-laundering, cheque-bouncing, tax fraud, something!

Mallya inherited his father’s liquor business, being the only son, at just 28. Emerging from the obscurity of coming from his father’s second family, he quickly became addicted to an emperor-like flamboyance, fuelled by an insatiable appetite for highly-leveraged, debt-fuelled growth.

But Kingfisher Airlines, established 2005, never ever made any money. By early 2012, it was in deep trouble, its share price tumbling, so that its market value stood at just Rs. 960 crores. It gave up all its international flights, and cut back the domestic ones till it was operating just 22, and still bleeding money. 34 of its leased planes went back as the rental leases of over Rs. 1,000 crores were outstanding.

It owed Rs. 7,500 crores  in 2012, and the promoter holding in hand was at 35.86 per cent; but after minussing the shares Mallya had pledged, the remainder was just 3.55%.

The only one amongst the lending banks that flew the coop was ICICI, because it presciently sold Rs. 430 crores worth to Srei Venture Capital in mid 2012. Most of the others converted their debt into equity, but this rapidly became worthless. From a high of some Rs. 40 per share, the share stood at just Rs. 1.36  in June 2015. So are these banks, holding worthless equity they took on voluntarily, even in any legal position to ask?

Cut to March 2^nd, 2016, and the $75 million of the Diageo severance settlement, of which Mallya is said to have gone to England with $40 million. 

He does have other businesses abroad, and the possibility of starting new ones, plus several properties/assets: in the UK, France, the US, South Africa, Hong Kong etc..

So, what is the moral of this story? First, the PSU banks are easy targets for crony capital motivated by the political class, and the only solution is to privatise them.

Second, the borrower must be moneyed, and the lending must be against solid and sufficient collateral in every instance. Here, the borrower should have been USL or UBL, with its solid balance sheets and assets.

Third, handing out thousands of crores against esoterics like brand value for a new enterprise is ridiculous,  and possibly malafide.

Fourth, if the pending Bankruptcy Code becomes law soon, the creditors will be able to jump in and seize the enterprise and its assets in future, change the management, and try to revive matters before it is too late.

Fifth, until there are steady profits generated, there is no case for lending money to a new entity in the absence of matching promoter funds and solid collateral.  

Exceptions that prove the rule: Standard Chartered Bank recently had to write off $1.5 billion. This, for lending huge unsecured monies to Indian infrastructure companies.

Therefore, nothing is fool-proof, and even as the ultra-cautious RBI under Raghuram Rajan frowns on risky lending, it doesn’t want to dry up bank credit either.

For: The Quint

(752 words)

March 15^th, 2016

Gautam Mukherjee

New Movement On Structural Reforms In Parliament

New Movement On Structural Reforms In Parliament

Just when most analysts and India observers had given up, resigned to the Modi government’s boring economic incrementalism, far from good enough to deliver the goods - along comes a surprise.  

There has appeared, with the breakthrough of two important structural reform laws, a gap in the hedge. A clear passage, through the perpetual battle royale in parliament, it comes like a breath of fresh air, and not a moment too soon.

The long impasse, practically throughout the 21 plus months of this government’s existence, was holding up, not only the government’s reform and legislative agenda, but also wilfully retarding the nation’s rate of GDP growth. Some observers have said that the potential to achieve double-digit growth was being stymied by a tragic lack of consensus.

Not all the regional parties have been comfortable with the Congress brand of confrontational and ‘beggar thy neighbour’ politics. Particularly, as the non-passage of GST, Labour, Bankruptcy, Land and other important reform oriented laws, was, and is, adversely affecting several of the states. 

With an unprecedented and perilous figure of PSU bank NPA’s, the implementation of the Bankruptcy Code for example, has progressed from being a desirable to a dire necessity.

However, with many of the operational controls being state subjects, some have cut loose, to make progress on their own. This is making for uneven development and wasted opportunity in those states who insist on partisan politics trumping all else. That this methodology is self-defeating over the medium term, is starting to dawn, even on the stick-in-the-mud Congress. 

Besides, it shows it the limitations of its obstructionism that cannot sustain.

The BJP too is now like a thing transformed. Gone is its inexplicable diffidence in the face of opposition attack. From being a good facsimilie of “Congress plus cow”, as senior BJP member and author/journalist Arun Shourie had it, it is showing signs of the Modi stamp of conviction politics at last.

It has thrown over its failed strategy of trying to curry favour with the  belligerent Congress, and begun to kick back. The RSS too is taking on an unapologetically positivist and modernist role within its socially transformational space.

Congress, trapped in its mandir-masjid mindset and its corrupt image, finds itself slipping off the bully pulpit. Lost and unmoored, it is desperately making common cause with separatists, maoists, communists, convicted terrorists- being depicted as  martyrs, other anti-national elements, even amongst students and professors; and all this in the quest for political traction. It has even gone so far as to compare ISIS to RSS, if in a diabolical and roundabout way.

Besides, this kind of divisive propaganda politics may be short-lived yet, particularly within parliament, if a certain private member’s bill, recently introduced, becomes law. This quiet proposal has the potential to change the complexion of parliamentary functioning once and for all.

This bill, let us call it the Anti-Disruption Bill, was introduced recently, in the Lok Sabha by MP Jayadev Galla of the TDP, one amongst the 32 private members’ bills admitted. It may well be the next big idea after Rajiv Gandhi’s Anti-Defection Bill became law.  

This would-be law seeks to effect the disentitlement of daily allowance to members for disrupting the House, and further the “termination of membership of a member or group of members who disrupt proceedings of the House”.  It would throw an elected MP out of office, privileges and perquisites, for the remaining duration of his term for disruption of parliament.

In one fell swoop this bill, if it becomes law, will return parliament to discussion, debate, decorum and democratic voting as envisaged by the founding fathers of the Indian constitution.

In the context of constant mayhem, the washout of two consecutive parliamentary sessions, the colossal waste of public funds, Galla’s bill has come at a most opportune time and could create history.

While we will have to wait and see how this highly significant bill progresses, for now, the long-awaited Real Estate Regulation & Development Bill 2015, that empowers and protects the interests of home-buyers was passed into law on December  10^th.  It will go a long way to revive the confidence of buyers’ in the residential housing sector.  The builders will not be able to delay projects with impunity in future, nor can they divert investor funds into multiple projects, or indeed siphon off monies into private aggrandisement.

Another most welcome development was the introduction of the Aadhar Bill as a Money Bill in the Lok Sabha. As  a money bill, it cannot be blocked, even as Congress, true to form, is protesting its very introduction as a money bill.

Once passed, the implementation of the Aadhar Bill will go a long way to accurately target subsidies for the poor, and prevent their misappropriation by unscrupulous and corrupt middle-men. 

At first, it is intended to be used for the LPG and food subsidies. Later on, it may well be the preferred conduit for all forms of government assistance direct into the bank account of the recipient.  Already the fertilizer subsidy for farmers is intended to be streamed through Aadhar.

In conjunction with millions of bank accounts recently opened under the Modi government’s early initiative in this regard, and others expected to follow suit, not only will millions of the ‘unbanked’ join the organised sector, but with help reaching the deserving without ‘leakages’, the Aadhar Law plus the individual bank accounts has true transformative potential. The Aadhar Card’s parent, Nandan Nilekani, suggests that it can be used not just for subsidies, but to “democratise credit”.

On the back of these two laws, the government seems far more confident of passing other sorely needed bills in the second half of this budget session itself.

The weakening of the Congress strength of numbers in the Rajya Sabha, with members routinely retiring and so on, has had a part to play in the new developments. 

Some reports suggest that it too does not want to fly in the face of opposition unity. Getting ensnared in an increasing number of probes, investigations, and prosecutions, is also putting on the requisite pressure to persuade cooperation.

This, even as the Modi government is apparently doing much better at coordinating its initiatives with the less obdurate sections of the opposition.

The large number of state assembly elections coming up makes it difficult for Congress to continue with its role of spoiler, particularly when others in the nominal opposition outside the NDA, want to take a more proactive and positive stance to their voters.

At this rate, the second half of this government’s term promises to do much better than the first.

For: The Pioneer

(1,099 words)

March 15^th, 2016

Gautam Mukherjee

Super Tuesday and the Trumping of America

Super Tuesday and the Trumping of America

It is difficult not to notice what is happening in the American primaries, mainly because of the presence of a blond, blustery, red-faced man, an increasingly serious contender, with startling views and strong deliveries.

Both Hillary Clinton, the first would-be female president, and Donald Trump racked up 7 wins each out of the 11 possible, in states that voted in the primaries on ‘Super Tuesday’.

But Trump is ahead on the number of delegates he still needs to clinch the Republican nomination, over Clinton on the Democrat side. She has to pull further ahead of her challenger Bernie Sanders, to be certain. 

But now that Trump is demonstrating undeniably broad support,  his detractors within the GOP (Grand-old-party- aka the Republican Party, symbol-elephant), are distinctly miffed. They did not expect him to last this long, let alone keep going from strength to strength with increasing traction, and this without their help.

Some outside liberal comment, on both sides of the Atlantic, trying to psychoanalyse the state of affairs, is suggesting that America itself has become rather like Trump, and not in a nice way. That Trump is the candidate of the ignorant and less-educated amongst the White majority.

But as the primaries roll on, the facile reactionary argument, that Trump’s nomination may be another way of handing certain victory to Hillary Clinton, has as many paranoid flaws as the original ‘nobody is going to support that loud-mouth-bigot Trump’, that has now fallen by the wayside.

Notwithstanding the calumny heaped upon Trump from various quarters, if the rank-and-file Republican voter keeps seeing to it that ‘the Donald’ continues to win big, for example in the next cluster of states in Mid-March; it will be very difficult to stop him seizing the  Republican Party nomination.

More so, because continued obduracy on the part of the party bosses might force Trump to leave in disgust, and run as an Independent.

If that happens, conventional wisdom has it that the Republicans, with their voters divided, are certain to lose. The election will go to the Democrats, or, if not, given enough groundswell support, to Trump, on his own!

Of course, much before Trump gets to the White House, if he does, after the inauguration in January 2017, the GOP may read the writing on the wall and decide to unite behind him. The Republicans may well hand him the nomination, without further contention, at the forthcoming party convention.

Then, as ‘the chosen one’ representing the  legacy of Abraham Lincoln and Ronald Reagan, Trump will have to conciliate and unify  all party factions, in order to go out to do electoral battle with Hillary Clinton single-mindedly.  

If however, in the unlikely event he has to leave the party, and battle on as an  Independent, all obligations, and bets, on the future course of action, should Trump win, are off. It will make history of course, as no independent has ever won before.

But if Trump does, either as the Republican candidate, or on his own, it will be a massive mandate for change. If he does, it will mean, like Modi in India,that his personal resonance with the electorate has proved to be greater than the appeal of his party.

If he wins as an Independent, it will further underline the difference, and he will stand taller than those from either of the two long-standing political parties.

Either way, it will clearly signal that the American voters are determined to overhaul the political establishment. That is why they would vote in a rebel outsider, a flamboyant businessman, one with no prior political experience, to the most powerful job on earth. A person moreover who  speaks a different kind of language, provocative and deliberately shorn of political correctness.

A president in the making, backed by a popular revulsion against the political establishment. A person famous and popular, long before this campaign, but not as a politician. A rich man, billionaire successful, unconventional, with none of the political baggage of his rivals. A man aspiring to the most powerful political office in the world, without ever once having held any public office.

How will it affect India if Trump wins the presidency? He threatens regularly to bring ‘jobs back from India’ on the campaign trail, but it is  debatable just how many US jobs have actually been exported to India. Unlike, that is, the mass-manufacturing units in China. His other remarks with regard to India are by and large favourable, particularly in comparison to what he says about China or Pakistan; and certainly, about Mexico.

At a personal level, for what it is worth in statecraft, both Trump and Modi are outsiders, and this should help them bond. But it is not certain by any means. One is a billionaire with a putative racist streak, born rich; and the other speaks English with peculiar syntax and a very thick accent, and still takes an inordinate pride in his chaiwala days.  

Still, there might well be continuity, and there have been odder pairings in history. After all Modi gets on well with the Harvard educated ‘my friend Barack’, and thinks most heads of government are worth hugging.

At a deeper strategic level, Trump’s victory, and his unconventional political style, may provide momentum to the tilt towards India as a Kissingeresque countervailing force; to check the disruptive power of the China/Pakistan/North Korea combine.

India’s footprint of influence might be extended, with US backing to include not only the SAARC region in South Asia, but markedly farther  afield.

This is evident in a muted capacity presently in West Asia, the Asia-Pacific, amongst the G-20, BRICS, the most influential Nuclear Suppliers Group (NSG), the UN, IMF, World Bank, ADB etc. as well as the littoral Indian Ocean region.

But, under Trump, determined to overtly revive US power, India might receive a substantial boost as a favoured and chosen ally in the region.

This new Indo-US alignment, post the break-up of the USSR, actually began in the ‘unipolar-globocop’ world under Bill Clinton, during the Vajpayee administration. It was carried forward by George W Bush and Manmohan Singh, particularly in UPA I, when the nuclear power deal was signed. And lately, by Modi and Barack Obama, with many more bilateral visits and meetings, visibly greater military, technological and intelligence sharing cooperation, emerging directly, and via other US allies.

But going forward to 2017, it is clear that many of the old constraints, at the beginning and middle years of the tilt, have melted away. America is less dependent on Pakistan and China than it was in recent times. Its direct involvement in Afghanistan and Iraq are mostly done with. Diplomatic relations have been restored with Iran. Myanmar is coming out of its long isolation with a new break-out of democracy. The OPEC leverage and oil price politics is on the wane.

India has drawn closer to Israel, South Korea and Iran on its own. Its tireless and constant efforts to unite the world against terrorism are also finding much greater support and understanding, with many countries around the world. These not only include varied nations like the UK, France, Germany, Thailand, Canada, Russia, Indonesia, but lately, also the UAE and Saudi Arabia. The latter countries have seen fit to recalibrate their relationship with India vis a vis Pakistan to suit. How much of this has come about via US nudging?

America, and its strongest allies in the Asia-Pacific region, Japan and Australia, are already backing India to a much greater extent now in the context of the changed geo-political scenario.

Trump as president, if he remains true to his maverick streak, will be expected to think out-of-the-box and shake up the Washington establishment first and foremost. Many staffers and key players of his administration are likely to be drawn from outside the GOP net.  While as president Trump is likely to greatly moderate his confrontationist style, there is little doubt that he will try hard to give shape to his vision of returning America to a strategic pre-eminence, combined with economic and military greatness.

It will not be easy for Trump to redraw power equations and rejuvenate alliances in the increasingly multi-polar scheme of things presently; but if and when he tries, India, with its stability, responsibility, and democratic polity, may well find itself strategically placed to benefit from the effort.

For: Swarajya

(1,387 words)

March 3^rd, 2016

Gautam Mukherjee

Cement Mixer Politics

Cement Mixer Politics

The earlier narrative of a phoenix-like Congress rising from the ashes under the leadership of a mysteriously rejuvenated vice president Rahul  Gandhi, is beginning to fall apart - both inside parliament and outside.

For a while, it looked very good for the disruptive and boorish avatar of Congress, culminating in its resounding victory, in consort with its camp followers, and the JD(U)-RLD combine in Bihar.

Though Delhi was also thoroughly lost to the BJP, it was worse for the Congress to be completely wiped out where it had ruled for three consecutive terms. Still, Rahul Gandhi’s Congress adopted much of its disruptive style from the NGO/activist politics of the AAP.

Almost single-handedly, despite being just 44/45 seats strong in the Lok Sabha, and some 68 in the Rajya Sabha, Congress managed to trash both the monsoon and winter sessions of parliament, and paralyse the government’s legislative agenda.

Large and important bills like the GST, the Land Bill, the Bankruptcy Law, the Labour Law, the Real Estate Bill and so on, are all pending. And they will stay marooned, unless the government finds a way to coerce, rather than persuade, the Congress into cooperation. This can happen if it is punished for its negative politics in forthcoming assembly elections.  

But in parliament, it is made difficult by the reckoning that if the Modi government succeeds in being reformist, Congress will find it very difficult to return to power.

Recently, the Left and Congress, buoyant from its many political guerrilla style attacks on the government, thought they might just have it on the ropes. This, after the suicide of an OBC post-graduate student at Hyderabad, followed quickly by separatist, anti-government, anti-Hindu offensives at JNU and Jadavpur universities.

But neither opposition parties were actually prepared for the sudden counter-attack. The home ministry and the police arrested the students, applying the archaic British era sedition law. But, over the top or not, it was also used liberally by the UPA in its time.

Coincidentally, various senior Congress leaders have become enmeshed in other legal proceedings. The mother-son leadership of the Congress is out on bail in the National Herald case. Rahul Gandhi by himself, is also facing a charge of sedition.  Voluble Congress general secretary Digvijay Singh is out on bail for a recruitment scam case dating back from his time as chief minister in Madhya Pradesh.

Former union minister P Chidambaram, it is now revealed, allegedly rewrote an affidavit to conceal that terrorist Ishrat Jahan, killed in a legitimate police encounter in Gujarat, was a known LeT operative. He apparently did this, bypassing then home secretary GK Pillai. The government is now going into the details of the case to determine Chidambaram’s culpability in the matter, and to provide possible relief and retribution to the others affected.

In addition, the ED (Enforcement Directorate) has also discovered that Chidambaram’s son, Karti, amassed huge wealth and property in various parts of the world, in the period 2006-2014, when P Chidambaram was a union minister. This has become an electoral issue in Tamil Nadu.

So in the current budget session, used as the Congress/Left have become, to raising slogans, rushing to the well, and refusing to allow any business from being conducted, they were overtaken and outshouted by the AIADMK. The southern party is loudly demanding immediate action against Karti Chidambaram in the Aircel-Maxis scam. And this, vigorously enough to shut down both houses of parliament on the 1^st of March.

The AIADMK demand has drowned out the gratuitous Congress clamour for a privilege motion against HRD minister Smriti Irani. Besides, the government plans to move its own counter-privilege motion against Jyotiraditya  Scindia, to trade charges on who ‘misled’ the house.

Both sides will now have to wait and see how AIADMK is served, but the NDA must be pleased, particularly since Congress has teamed up again with DMK in Tamil Nadu.

With the government now determined to give as good as it gets, the odds are beginning to even. Another instance of returning the favour of Rahul Gandhi’s oft-repeated ‘suit-boot’ jibe came almost providentially. State BJP men were able to point out Congress run Karnataka chief minister Siddaramiah’s Rs. 70 lakh diamond encrusted Hublot watch. So much so, he was forced to donate it to the state treasury.

The fall of the Congress government in Arunachal Pradesh due to defection in its ranks, and the possibility of a BJP plus win there in fresh elections, is also evidence of a more aggressive stance, reminiscent of  former prime minister Indira Gandhi.

As of the 29^th of February however, the NDA may have gone in for a real and strategic shift to the left, with emphasis on measures for rural India, the farmers, the poor, poor women, job skilling etc.. Many are hailing it as the ‘Jai Kisan’ budget, echoing former prime minister Lal Bahadur Shastri’s famous slogan.

If this stance is amplified going forward, it won’t be easy for the opposition, even as new rounds of assembly elections come into view, to accuse this government of being anti-poor.

And by cleaving to the prudence of upholding the fiscal deficit targets unchanged at 3.5% for FY17, the government has also pleased most conservative economic observers, here, abroad, and in the RBI.

An interest rate cut therefore may shortly be in the works, provided there is no spike in inflation. This might just stimulate the beginning of a fresh investment cycle in private business and industry, long awaited over the 21 months of this government’s tenure.

If, through both substantive measures and perception shifts, the government begins, more and more, to resemble the UPA however, it should still remain free of scams and high-level corruption.

However, for those who had hoped for Thatcherite privatisation, at least of badly done by PSU banking, for example, or Reaganesque tax cuts and government downsizing, the Modi government is clearly not going to oblige.

It is apparently committed to an incremental and cautious growth of the Nehruvian mixed economy. It will not risk its political capital with bold structural reform and open-market capitalism.

 So, as Modi reveals his essentially nationalist philosophy, the BJP is deliberately moving towards a presumed larger, centre-left constituency, carved out perhaps from defectors from various dynastic regional parties and the Congress. Thankfully, it has retained its strong commitment towards building up the Indian Railways, roads, highways, electricity, and ports, rivers, canals, nuclear/solar energy, defence and other manufacturing, at the same time.

Whether this development promoting party with a pro-poor beating heart will produce more votes, remains to be seen. For now,  it may be  the guerrillas who’ve been ambushed by the state.

For: The Pioneer

(1,104 words)

March 1^st, 2016

Gautam Mukherjee

A Needy Tinkerer's Budget

A Needy Tinkerer’s Budget

Where are the 2^nd generation structural reforms this country and its would-be foreign investors have been waiting 25 years for?   

Where is even the massive push to revive rural India?  The rural sector needs at least Rs. 300 lakh crores in direct development funds right here right now - if words like transformational can be applied to it.

There is Rs. 87,765 crores allocated to ‘rural development’, but this is already part of the one happy ‘infrastructure figure’ in this budget.The Rs. 2.87 lakh crore announced for gram panchayats and municipalities, is an intent.

The finance minister may well claim an increase in the GDP from 6.3% to 7.6%, but most of this has come from lower petroleum prices. Internally, via the efforts of the NDA government over 21 months, India has not grown much. It is still in dire need of a set of bold initiatives. Alas, this budget, like the two before, is not it.

This budget can best be described as a compendium of detail and petty husbanding of resources, a fiddle-faddle, a tinkering.

Nobody in the finance ministry has thought fit to attempt the make-or-break budget called for. There is hardly anything large enough in it to make any section particularly happy, with the sole exception of a healthy allocation of Rs. 2.21 lakh crores, all to be spent this year, to infrastructure.

This, of course, includes highways, rural-roads, and the railways. But still, it is likely to yield new jobs, and fine long-term economic results.

Almost everything else, including the unproductive, if humanitarian, dole of the highest-ever allocation for MNREGA (Rs. 38,500 crores), is not going to do very much.

All over the budget speech, the finance minister demonstrated his characteristic trickling of ambition, as if using a domestic watering can, when a flood of resources and bold action is called for.

The priority ostensibly given to the rural sector is not accompanied by structural policy changes that could have brought in a surge of badly needed foreign investment.  

Instead, paltry sums are allocated to try and deal with 50% of the population in crisis after consecutive years of drought and flood. There is just Rs. 35, 984 crores allocated for agriculture, and a target of upping agricultural credit from Rs. 8.5 lakh crore to Rs.9 lakh crore. There is Rs. 60,000 crores for recharging ground water, and even less for irrigation. Another miniscule Rs. 5,500 crores for the Fasal Bima Yojana. A token Rs. 412 crores has been placed towards encouraging organic farming.

Rural electrification though, such as it is defined, is proceeding apace.  

There is a nod towards the food processing sector- 100% FDI will be permitted in the marketing of value-added produce, as long as it is processed in India.

With such dynamism, the intention of doubling farm income in five years seems decidedly dodgy.

In broader terms, looking at the rest of  the proposals, the indelible stamp of bureaucracy blended with a discernible tug towards the left is evident.  

Cars and SUVs of all types will cost more, as will jewellery. Dividends will now be taxed in the hands of those who earn more than Rs. 10 lakhs from it. Smokers will fork out 15% more in excise duties.

 There is minutiae when it comes to reliefs:  1% reduction in corporate income tax to 29%; no changes to individual income taxes except for raising the HRA rent deduction from Rs. 24,000 to Rs. 60,000. Tax rebate under another section of the IT Act for those who earn Rs. 5 lakhs taxable, raised from Rs. 2,000 to Rs. 5,000! There is also a Rs. 50,000 deduction on home loans up to Rs. 35 lakh for a first home, priced at not more than Rs. 50 lakhs.

Most incentives are equally niggardly: Start-ups will get tax exemption for 3 years except for MAT. Service tax, which now stands at 15%, is exempted from affordable housing upto 60 sq.metres.

The plan to ‘skill’ I crore youth over the next three years begs the question whether there will be jobs created for them.

Much has been made by observers over the government’s resolve to retain the fiscal deficit target unchanged at 3.9% for FY16 and 3.5% in FY17. The logic being that possible inflation from a more relaxed fiscal deficit would be the most pernicious of taxes, and hit the poor the hardest. The resultant higher levels of investment into growth sectors that allowing a higher deficit would have permitted, does not seem to have many backers. In any case, the government has opted against it.

Some welcome liberalisation: shops can stay open for all seven days just like malls. Privates can operate public transport systems. Income tax officials will have less discretion to harass.

But, overall, yet another lost opportunity for this government.

For: The Quint

(800 words)

February 29^th, 2016

Gautam Mukherjee

Budget Bullseye: Jobs, Odd-Jobs & No-Jobs

Budget Bullseye : Jobs, Odd-Jobs & No Jobs

Sabka Saath, Sabka Vikas, the master slogan of the Modi surge to power, apart from being inclusive, implied progress and prosperity for all.

Amongst all the cacophony on the edge of budget day, we must place the demand for jobs- a-plenty centre-stage. But, 21 months in, India’s ‘demographic dividend’, 65% in age-band 15 to 35, is still a ticking time-bomb.

The coming budget is sure to allocate substantial resources to rural areas, hit by consecutive droughts and floods. But, will the money be targeted for job creation?

Also, the urban new manufacturing, even if it increases its share of GDP in value terms, from the current 17.8% to 25%, cannot deliver very many jobs. Not in the context of the coming decade wanting over a 100 million new ones!

So far, the government has only managed, per its Labour Bureau statistics, to generate 524,000 jobs till March 2015.

To get anywhere near the numbers needed, India will have to unleash massive infrastructure development, and the complete modernisation/urbanisation, of the rural areas.

Definitions of rural employment have to change. With constant land sub-division and farming producing just 17% of GDP, it cannot support 50% of the population.

To get ahead, rural India needs to mix it up with those activities it can find accessible. It is interesting to note that a grouping like ‘trade, repair, hotels and restaurants’ from the ‘services’ listing , contributes 12.40% to GDP today (Planning Commission- July 2015).

Another sub-head here, ‘financial, real estate and professional services’, notches up 20.54% . With over 300 cities and towns in the A, B, C, and lesser categories, there is scope here.

The services sector, that will embrace all the new age digital, e-commerce business emerging, is today at 52.97% of GDP.  ‘Construction’ accounts for 8.04% under the ‘industry’ grouping. There is no reason for all this to be exclusively urban.

The money also lies in food-processing, innovation, value addition of farm produce, that will also curb food wastage.  India is, after all, the 2^nd largest  agricultural producer in the world.

Then there is Packaging, rural automation, materials handling, grain storage facilities, farm machinery, seeds, yield betterment technologies, automation, servicing workshops, vocational skilling institutes, digital connectivity, localised urbanisation via the smart cities programmes, development of tourist attractions/infrastructure around heritage treasures, large educational campuses, entertainment complexes.

Building rural physical infrastructure contributes to upliftment alright, but an unimaginative throwing of government money at one or the other of the labour-intensive welfare programmes is shabby.  As a dole, it is a political hot potato and will no doubt continue.  But rural infrastructure can be built much faster and better using modern methods.

Similarly, in urban India, that contains the other half of our population, there needs to be a great push towards fostering entrepreneurship, start-ups, e-commerce, services, digital initiatives, construction, the arts, cinema; all things that are in addition to mostly automated manufacturing.

Besides, the trends cannot be bucked. A recent White House Council of Economic Advisers (CEA) report states that there is an 83% chance that jobs in the US that pay below $20 an hour, will likely go to machines. And another 31% chance that jobs paying between $ 20-$40 an hour, will also follow suit. 

Once assembly-line jobs were plentiful, but they have declined 37% since 1979. In 1965, manufacturing accounted for 53% of all US jobs, but it’s down to just 9% now.

Oxford University researchers Carl Benedict Frey and Michael Osborne estimate that 47% of all US jobs, including those creative, discretionary, apparently robot-proof ones, could end up automated by 2033.

So welcome to the world of thinking robots, intuitive computers that can do lateral-think too. Such abilities are being embedded in all sorts of devices, from smartphones and manufacturing robots, to sex dolls.

This is all good for GDP growth and productivity, even as we are already in the age of air drones that can do surveillance, delivery work or kill on demand. Similarly there are undersea-bots, driverless trains, and cars.

Let us understand that the most desired defence production and Make in India programmes will certainly bring a portion of the foreign procurement home, and sophisticate the skilling programme. They may even yield high value exports, and up our global trade percentages, and yes, add a few million better-paid jobs.

But right now, 90% of Indian jobs are in the ‘unorganised sector’. The government should take a cue from this enterprise, facilitate its growth, hook it up to a supportive grid, and then get out of the way.

(751 words)

February 26^th, 2016

Gautam Mukherjee

Rail Budget Hallmarks: Execution, Modernisation, CAPEX

Rail Budget Hallmarks: Execution, Modernisation, Capex

The Modi government’s  2^nd railway budget reiterated its transformational/aspirational thematics, with emphasis on modernisation across the board, and its hallmark of execution.

The tone of this budget was energetic and futuristic. And for the first time ever, it had an implementation report at annexure 2, based on promises made last year- 139 of which are at different stages of implementation.

The 2016 budget unveiled some new types of trains: fully unreserved, air-conditioned all 3 tier ones, those that will travel at 130 km/hour or faster, with newly designed coaches, double-decker trains that can carry 40% more people.

The strategic departure is in how the railway is rapidly connecting the North East, with broad gauge trains to Mizoram and Manipur.

Freight, the cash cow of the railways, will be enhanced with 25 tonne axle-load wagons, and the urgent implementation of the first two of the freight corridors by 2019, with access from at least 100 private sidings, RoRo technology, and a drive to recapture its dwindling market-share.

There is a plan to connect ports and highways to trains, a Diamond Quadrilateral to complement the Golden Quadrilateral. Also, an auto-hub is coming up in Chennai to help transport cars.

Two new locomotive factories in Bihar will be built soon. The electrification budget is up 50% , and 2,000 km of track will go electric in 2016-17, alongside another 2,800 km of new track laying.

Prabhu announced a stretched revenue target of Rs 1.85 lakh crores for 2016-17.  And this, to be delivered via an operating ratio of 92%, up from 90% presently. This ratio is up slightly to allow for the awards of the 7^th Pay Commission, an additional Rs. 28,450 crores, for the 2.6 million railway employees and pensioners.

The minister plans to revamp the workings of the bureaucratic Railway Board to improve implementation and wants to introduce zero based budgeting.

Over the last year, the railways have not been able to achieve its freight revenue targets, but this was largely offset via operational savings and lower fuel bills.

But still, the ministry does have some momentum: over the last year, 44 new projects, worth Rs. 28,000 crores, were awarded, compared to just Rs. 13,000 in aggregate in the previous six years prior.

Prabhu continues the modernisation drive here, with a capital expenditure budget of Rs. 1.21 lakh crores, up 20% , and more than double the  average of Rs. 48,000 crores annually, in the UPA years.

This capital expenditure is the key ingredient to the revival strategy for the Railways, announced as part of the Rs.8.8 lakh crores to be spent over five years. But to kick in Rs. 2 lakh crore each for the remaining three years of this government’s tenure may be daunting, unless, of course, new revenue streams are found.

The government will provide Rs. 40,000 crores towards this year’s capex, again, as it did last year. A financial investment from LIC has also been secured for Rs. 1.5 lakh crores, albeit disbursable over 5 years, but at excellent terms, per the minister.

The minister also indicated that a concerted effort will be made to realise at least 20% of future revenues from non-tariff sources such as advertising on railway property/stations, and judicious monetisation of railway land in innovative ways. Comparable railway networks abroad do obtain about 30% of their income from non-tariff sources.

For the first time, the Indian Railways is also actively seeking collaboration with the various states, and while 17 states have shown interest, 6 MOU’s have already been signed.

The bullet train from Mumbai to Ahmedabad, with Japanese involvement, was also mentioned, as a force-multiplier, and in terms of technology, know-how, and skill development.

Prabhu plans to build bio-toilets on every train, (up from the 17,000 already done), do away with dangerous unmanned crossings altogether, renovate over 400 stations, vastly improve cleanliness, introduce wi-fi, e-ticketing, FM radio, wheel chairs, hand-held ticketing, phoned in cancellations, dustbins, CCTV coverage, better class catering etc.  

Speeds will increase all around; freight up to 50km/hour and express trains up to a minimum of 80 km/hour. The Railways will be integrated with other modes of transport. Its extensive data mining might be monetised too. There will be two elevated suburban corridors created in  Mumbai, and other city metro networks will expand too.

But all in all, much of this is not news. Competent, path-breaking, and far- reaching as this budget in series is; and most commentators are giving it 7 points on 10, there were no out-of-the-box surprises.

For: The Quint

(749 words)

February 25^th, 2016

Gautam Mukherjee