Indian Economy: Help! Spinning Wheels Need Traction

Indian Economy:  Help! Spinning Wheels Need Traction

Crude oil at just $27 a barrel, all 159 litres of it, making a good size Norwegian salmon available at the same price of its oil, is a wonder to behold. It is a phenomenon that is shifting geo-political fault lines.

Petroleum prices will stay down in the short to medium term, along with a host of other metals and commodities. It is India’s once in a lifetime opportunity. Should we then be dithering on the edge of Carpe Diem, or  be boldly hitching our policies to the prevailing wind?

Finance minister Arun Jaitley, soon to table his third budget, speaks blithely of 8.5% growth in GDP going forward, even without the structural legislative reform such as GST and Land/Labour/Bankruptcy laws blocked in parliament.

But maybe there is a clue in how this might come about, from Columbia professor Arvind Panagariya, now heading up Niti Aayog.

Panagariya knows our banks are riddled with bad debt, racked up by some of the best known companies. The NPA’s are hovering at some 5% of GDP, many long-gestation infrastructure project related, and compounded by flawed business models.

Still, Panagariya, on balance, wants to press on. He wants the government to ease the fiscal deficit targets, open the spigots, and pour borrowed government money into rapid infrastructure development. He knows this chance may not come again.  

Raghuram Rajan at the RBI disagrees. He does not like profligate debt-fuelled growth, here in India or elsewhere, and wants to clean up the PSU bank books and recapitalise them instead.  He also wants the ‘crony capitalism’ of the best known Indian companies defaulting on huge borrowings with impunity to be stopped. But, as yet, an efficient bankruptcy law is still not operative, and rich people can happily defraud the tax payer and the nation.

Meanwhile, prudent as this is, and more solid in the long run, the ship of immediate opportunity will surely sail without us!

The prime minister on his part is going all out to attract foreign investment as equity, not borrowing, and cutting-edge technology as know-how to improve our skilling. India is a promising place to invest in a despondent globe is the pitch. But, yes, it continues to be riddled with policy and implementation problems, even as he unties as many knots as  fast as he can.

It is a unique moment in time too. There are many bigger economies today, but only the US is growing its mighty $17 trillion economy at 2.5%.  

India, called the ‘bright spot’ amongst large economies, even at just $ 2 trillion, has been shrinking to 2013 levels. Its industrial growth, exports, services, the stock markets, are all worsening month to month, partially buffeted by external pressures. There is little bank credit. The currency is eroding sharply against the ever strengthening US dollar.

And infrastructure, roads, power projects, railways, ports, defence manufacturing, mining, though they are activated and thrust areas, are not being implemented fast enough.  This coming budget will probably have massive governmental allocations, in the absence of private sector initiatives, but when will the spinning wheels of the economy find traction on the ground?

Food inflation, despite vastly cheaper oil, is rising, on the back of several  consecutive droughts and floods. Governor Rajan at RBI will therefore not be cutting interest rates very much. And yet, despite a moribund construction sector, the home-loan business, backed nicely by collateral, is beginning to pick up. Still, the basis of calculation of the GDP projected into the 7.1-7.5% range for fiscal 2016, is being questioned by the RBI too.

The glaring macro issue is that our ambition far outstrips the quaint financial, analytical, policy/ideology and process infrastructure we have put in place. There is a typical funneling and bottle-necking effect that hampers India’s ability to rapidly absorb huge investment it both needs and wants.

The good thing is that the scale and size of the pent-up task is vast, and one five year term, even at full tilt, can only serve to lay several of the foundations. It will be a decade or two, at least, assuming a strong pressure on implementation is maintained, before the transformation of the country, from its present state of inadequacy, to that of a developed nation, becomes evident.

That this government is dedicated to the developmental task is well appreciated. But, equally clear is the need to turbo-charge its ready-steady -go schedules to meet the aspirations of hungry investors, and the youthful public that elected it.  

For:   The Quint

(746 words)

January 28^th, 2016

Gautam Mukherjee

Bilaterism Is A Tandem Race Now

Bilateralism Is A Tandem Race Now

To moan about equivalence and hyphenation between large India and smaller, truncated, Pakistan, is now, a bit of a folly.

The fact is, we are talking of an India on its own in 2016, the USSR being long gone. It is building bridges once more, under prime minister Modi, militarily speaking.

There is a drawing closer to Japan, America and its NATO allies, and the European end of the erstwhile USSR- Russia. There is a move to blunt Chinese antipathy if not hostility, and even embark on a new era of cooperation and friendship.

As the fastest growing economy in the world, and a relative nation of calm in a troubled West Asian/South Asian theatre, India is now worth preserving to many.  

That may be why America has asked Pakistan to deliver on the perpetrators of the Pathankot attack, allegedly the JeM, three times already in the few days since it happened. And this, and not India’s submissions, will likely yield results.

The Pakistani stance is intrinsically powerful too. It is still in lockstep with its ‘all weather friend’ China, and reasonably warm with another Chinese satellite, the hydrogen bombing and bizarre North Korea.

It is said that Pakistan’s nuclear weapons scientist AQ Khan helped North Korea to go nuclear in the first place, probably with Chinese tacit support. Still, it makes quite a troika in strategic and military terms, and India has to look out warily at all of them.

What compounds Indian misery is the backward and inadequate state of its conventional military preparedness. The reach and stretch of its modest nuclear arsenal is also inferior to that of Pakistan.

Strategic experts do not think India currently has the wherewithal to even win a short conventional war against Pakistan.  This was the case in decades past, but not any more. This is because our war equipment  has grown antiquated compared to Pakistan’s, and there are huge gaps in the armour as well. We have no covert striking capacity of the hot pursuit variety either.

Against China right now, we don’t stand a chance, and against both combined, our only recourse would have to be help from abroad, just as it was, way back in 1962.

A question worth asking, though there are no easy answers, is why are we are so ill-prepared at this juncture, when our economy is so much bigger than it was in the early years after independence? And why does our military not have the armaments and equipment to a level of war preparedness, with two menacing neighbours on our borders? Are we reliant on the madness of mutual nuclear destruction alone to save the day? What will we do if our territory is overrun like it was in 1962?

Over the last decade at least, our rivals have raced ahead, while we have neglected our conventional military, both in terms of budgets and purchases. The Indian Armed Forces are respected the world over only because of the excellence of their training, that shows up in every joint exercise.

And very little has been accomplished in our attempts to build any of our defence requirements domestically, through the tardy and wasteful government monopolies.

Was this state of affairs created deliberately by a corrupt political class only interested in a defence purchase if the kickback was right?  Or can we put it down to bureaucratese and plain political callousness?

The truth is, as has been pointed out recently, after the Pathankot attack, that the nation’s security is not a vote-getting issue, and so the netas do not worry very much about it.

India does have a sizeable standing army, well-trained to cope with its inadequate resources, and so we carry on. But one commentator said the way it is structured and operates, is little changed from how Mountbatten and Ismay left it!

But increasingly, this kind of mid-last-century security apparatus is unfit for modern external threats, and can only help in internal insurgencies, natural calamity relief, and the like. But the Army playing nanny to the civilian state can hardly be called its fit function!

Every branch of the Indian military is in dire straits when it comes to equipment, despite India being the largest defence purchaser in the world. No acquisition is ever processed on time, and most have been routinely kicked down the road as bureaucrats and politicians tried to avoid controversy.

The Navy does not have enough ships, aircraft-carriers, submarines, missiles or the protective air cover that accompanies all modern navies today. Far from being a blue-water navy, it can barely secure our coastline at present, a function usually left to the Coast Guard.

We have just one refurbished aircraft carrier and need at least two more, and these, along with other ships and submarines, are now in some stage of interminable, indigenous production. Our submarine fleet is surviving somehow meanwhile, on leased vessels from abroad.

The Air Force has near obsolete fighters from decades ago, perpetually going down in technical malfunction crashes during routine sorties, often killing their pilots in the process.

There are an inadequate number of deployable squadrons due to such attrition. There is a paucity of spare parts for our ancient fighters, mostly from the erstwhile USSR, with modern Russia not too keen to service old Soviet commitments.

Its bomber fleet and transport planes, its helicopters, and other aircraft, are also old and depleted. An occasional acquisition or two, attempts to plug the most glaring gaps, in order to carry on, but the IAF is not nearly as well equipped as the PAF, let alone the Chinese Air Force, which makes a lot of its own aircraft, mostly from stolen designs or retro-manufactured, and has had the money to buy in the best.

Meanwhile, India is diversifying its sources, and buying planes from the US and now France, and possibly Sweden too, in the near future. This, in addition to Russia, partly to go with its ‘Make in India’ initiative. But even so, right now, we are grossly ill-prepared.

The infantry too has old generation guns, hardly any protective gear, like bullet proof vests and other clothing, night vision equipment, drones, electronic surveillance equipment and so on. The Army is also suffering from a vastly depleted officer corps and inadequate replenishment.

The armoured corps has old tanks, our indigenous effort being riddled with problems, and again, too few in number.

All these may just be examples, but the detailed picture is actually uniformly gloomy too. Indeed, if it weren’t for the patriotism and dedication of the Indian Armed Forces, we would be sitting ducks for almost any modern military power with aggressive designs. But our soldiers have had to make a virtue out of necessity, and manage to make a little go a long way.

Otherwise, how could we have repulsed the invasion at Kargil, partially thanks to the Bofors guns? This field artillery was infamously procured in the Rajiv Gandhi administration of the eighties.

Still, it is worth pondering how that engagement would have eventually played out if President Clinton hadn’t summoned Prime Minister Nawaz Sharif to Washington to give him his marching orders.

Some analysts feel that India has raced ahead of Pakistan economically precisely because it has absorbed very many terrorist attacks without expensive retaliation or war. But surely this is cold consolation for the families of those martyred. And we refuse to develop an offensive capacity via commando raids   and the like of our own.  

As things stand, even a minimum level of deterrence in military preparedness and counter terrorism is in danger of slipping away, if we don’t execute all the new initiatives on the anvil at the earliest.

The Modi government is indeed trying to stem the rot, and it is this that may redress the balance. Once we are better prepared, Pakistan may be forced to review its long-held ‘proxy war’ policy.

Besides, having become a geo-political pariah for its promotion of international terrorism against the West, Pakistan may be on the brink of being forced to change track now. It is no longer crucial for the scaled back US presence in Afghanistan. Its creature, the Afghan Taliban meanwhile, has been reduced to a shadow of its former self.

The global focus has, in fact, shifted towards the ISIS and West Asia. And to some extent, even away from Pakistan’s terrorist ‘6^th front’ of the LeT, the Pakistan Taliban, the JeM, and so forth.

This, even though the possibility of their getting their hands on a Pakistani nuclear weapon is always an abiding worry.

However, thanks to the oil prices crashing, Saudi Arabia is no longer able to support Pakistan with the kind of funds it once could; and this is true of any other of its erstwhile Arab friends, including Libya, no longer run by Gaddafi.

And China too is also in economic trouble, trying to stave off a severe recession.

So, it may indeed be time for the Pakistani establishment, the politicians, the Army, the ISI, and all its ‘non-state’ others, to close ranks, for their mutual survival.

Pakistan is not capable of waging even a proxy war without someone else footing the bill. That is how it has always been, given the rent-seeking and otherwise bankrupt economy of Pakistan.

But, with both America and China increasingly going off the table for their own reasons, and even the Wahhabi Saudis unable to provide succour, a settlement on Kashmir, and peace with India, may start to look increasingly attractive.

And not least of all because the West is not willing to countenance any more violence against it on its own territory emanating from a ‘terrorist central’ located in Pakistan. They may not be able to dislodge the so-called ‘deep state’ so easily, but replacing an Army Chief or a Prime Minister, with one or more amenable people, is always possible for such hegemons. This point has, no doubt, been absorbed by both Nawaz and Raheel Sharif in recent times.

When it came to the bilateral fandango, India and Pakistan on their own, have never been able to resolve their differences. Others have let them have at it because it suited them. But now, because of the changed geopolitical situation, the lesser need to cater to Pakistan, and the real threat of nuclear weapons going from a rogue state into the hands of terrorists; the determination of events must change to suit.

And so, a bilateral action between India and Pakistan, pushed hard by a number of world powers from the wings, is likely to see a favourable outcome, sooner rather than later. It will have the salutary effect of putting a lot of terrorists out of business, at least in the sub-continent, while ushering in a new era of peace and prosperity for SAARC which includes Afghanistan.

And in time, SAARC could well include China, Saudi Arabia, the UAE, and Iran, as observers, if not members, at first. The more, as they say, the merrier.

For: SirfNEWS

(1,825 words)

January 10^th, 2016

Gautam Mukherjee

The Enigmatic Underperformance Of Arun Jaitley

The Enigmatic  Underperformance Of Arun Jaitley

Arun Jaitley, once  a key LK Advani  protégé, Delhi-based and supremely well-connected, is still the least rickety bridge between the old BJP, led by  the octogenarian Advani, and the brave new  BJP, epitomised by the outsider from Gujarat.

This, even though Jaitley is thought to be Modi’s most trusted lieutenant, even as  Modi’s  own relationship with LK Advani is seen to be reasonably adversarial. Obviously, it takes great skill and tact to ride these very contrary horses at the same time, but, in a sense, this is precisely what makes Arun Jaitley what he is.

But today it is not his political survival skills which are being questioned, but his curious lack of achievement in governance, despite all the power, prominence, and connections at his command.

Jaitley was a greatly valued insider under Advani, as a General Secretary of the BJP, and then as the articulate but obstructionist Leader of the Opposition in the Rajya Sabha between 2009-2014. He was hand-picked for the role by Advani, who also appointed another protégé, Sushma Swaraj, to lead the opposition in the Lok Sabha.

Jaitley’s pre-eminence lasted throughout the ten years in the opposition, including the sadly flubbed 2009 election.  

And before that, in the Vajpayee administration, Jaitley also held several  prominent ministerial berths- Law &Justice, Company Affairs, Commerce & Industry.

Narendra Modi however, was the one that secured the 2014 general election, some  say, single-handedly, helped, of course, by his trusted groundsman Amit Shah, now the President of the BJP. 

This charismatic one-man-powerhouse, once Modi was elevated to being BJP’s prime ministerial candidate over the objections of LK Advani, saw the BJP secure an absolute majority by itself for the very first time.  

And so Modi formed a majority government, the first in 30 years. But, soon after, he relegated the LK Advani brigade to the sidelines, putting the elderly amongst them in the advisory Marg Darshak Mandal, and the younger ones in their camp out to pasture.

This internal exile however has provided a recurrent fault-line in the ruling party, that erupts into sniping and dissidence every chance it gets, much to the delight of the fractious opposition. And there are those who are looking for opportunities to play ducks and drakes in this matter.

But the eternal insider at Modi’s side, the suave  English speaking Arun Jaitley, has meanwhile, not exactly covered the government in glory,  even as 2016 will mark the half-way house for this term.

If the performance of Modi’s administration is lacklustre, the distinguished but ineffective Arun Jaitley is being increasingly blamed for it. Not only has he delivered two unexciting ‘babu budgets’, while presumably preparing for a better third, none of his vaunted networking skills have done much for the government, either inside parliament, or outside of it.

This is surprising, given Jaitley’s considerable track record, particularly as a negotiator and a back-room strategist in a number of successful state elections over the years, including those won by Narendra Modi in his successive terms in Gujarat.

And while the government has been receiving unfair and propagandist brickbats for its alleged ‘intolerance’, especially during the Bihar Assembly elections, Jaitley has emerged from that debacle to begin ploughing his own personal furrow.

He has, of late, begun projecting himself as a liberal, at variance with his party-line, with regard to his view on the lifting of article 377 in favour of the LGBT community, calling the present position ‘anachronistic’. He also wanted the reforming of censorship into mere certification, airing his views sometime before Shyam Benegal was asked to look into the role of the CBFC. This suggests, if only by implication, that it was Jaitley, rather than Modi, who is behind the reformist and liberal move.  Of course, the decision could have been arrived at collectively by the Cabinet too.

But why is Arun Jaitley positioning himself to appeal to a wider political audience beyond the confines of the BJP and the RSS, even though he originally cut his political teeth in the Hindutva-loving AVBP? And why at a time when his own performance in government has been criticised in the media for being average at best?

There are also controversial Wikileaks revelations that Jaitley wants to avoid a probe into the murky finances of the pro-Congress NDTV, even though they have been recently gone into in a detailed expose in Caravan magazine.

And now Delhi chief minister Arvind Kejriwal, and BJP’s own suspended leader from Bihar, Kirti Azad, probably for their own reasons ( political expediency and dissidence respectively), have managed to suggest that a lot of the corruption that went on in the DDCA when Jaitley  was chief, was done within his knowledge and tacit concurrence. Even though they don’t go so far as to suggest he or his family benefited financially from  any of it.

Jaitley has reacted sharply to the slur and taint by slapping a civil and criminal suit each on Kejriwal for defamation, while seeking massive damages.

Meanwhile a probe ordered by Kejriwal under the Delhi government and headed by Gopal Subramanium, has been declared illegal by the central government.

The quick-witted Communist Chief  Sitaram Yechuri has made it be known that he thinks Modi wants Jaitley to resign till his name is cleared. Modi himself has only said he expects Jaitley to come out of any probe or investigation with ‘flying colours’ as Advani himself did, in the long ago Jain hawala scam.

However, it remains a mystery why, as the virtual and de facto No. 2 in the government, with extensive experience in the central government, straddling the highly visible and important ministries of finance that includes company affairs and I&B, Jaitley has not managed to carry forward the election-time dynamism projected by Narendra Modi. He was also, till Manohar Parrikar was prised loose from Goa, the Defence minister for some months, again performing there ‘part-time’ and without any special distinction.

Jaitley has also failed to obtain favourable media attention for the Modi administration, the BJP Party, or its affiliates, including the RSS, in his I&B role. This despite his wide media contacts, particularly amongst the hostile ‘Lutyens’ Media’, built up over many years.

Perhaps, some say, Jaitley has too much on his plate altogether, given his indifferent health. Jaitley is seen to be a suave, English speaking Lutyens’ Delhi insider, with elaborate contacts across political parties, business, industry, the media and the legal fraternity, to which he still belongs, as a Senior Counsel.

Jaitley practiced law in the High Courts and the Supreme Courts till 2009, representing a galaxy of political heavy weights cutting across party lines, and also a plethora of large Indian corporations and multi-national companies.  

All these contacts, built up over several decades, should have smoothed the way for the Modi government, but they most certainly, have not.

Instead, Jaitley’s legacy of obstructionism as leader of the opposition in the Rajya Sabha during the UPA rule, has come back to haunt the current administration, and wreak vengeance on its legislative agenda. Congress calls it paying the BJP back in its own coin.

Despite all this, Jaitley has not been pulled up for poor performance is attributed to the perception that the BJP has a paucity of trustworthy and capable talent in its upper echelons.

Also, it is said, that the prime minister is beholden to Jaitley for coming through for him time and again at crucial junctures during his political career,  right from the aftermath of the Godhra  Riots in 2002, when he nearly lost his job.

But fact remains that even the most ardent Modi fan is miffed that the administration is so timid and bureaucratic in its functioning. The economy has improved to some extent, but mainly on the back of cheaper petroleum imports.

And even here, the finance minister has thought fit to increase tax on aviation fuel, as well as the petrol and diesel at the pumps. This, presumably as an easy way to plump up the government coffers, rather than passing on the bulk of the savings on to the consumer, even after allowing the erstwhile subsidies, except on kerosene, to lapse. 

The states, inevitably, have followed suit, slapping on their own taxes on top.  

The finance minister has also, at the behest of the banking lobby presumably,  burdened investment in debt funds with a three year lock-in period on pain of  any profits being taxed at the marginal rate applicable; with indexation benefits on a 20% tax rate surfacing only on completion of  the three years.

This was done in Jaitley’s last budget, cancelling out the previous one year lock-in, just like equities, which however are exempted from any tax on dividends or capital gain profits after the first year.

With a equity market that is poorly, this provision does not help in the debt market either.

But, such examples apart, where are the bold budgetary decisions in the absence of new laws?

Let us hope Arun  Jaitley comes up with something worthwhile at least in February 2016. Though, he has already been saying that the budget and the fiscal deficit is under pressure, thanks to provisioning for OROP and the 7^th Pay Commission. Can we expect anything good over and above? Only the enigmatic Mr Jaitley knows the answer for sure.

For : Swarajyamag

(1,543 words)

January 9^th, 2016

Gautam Mukherjee

Monkeybelle

Monkeybelle

People who say that a new year is just a date designed to mark time passing, may be struck by the speed and pace of momentous developments, both at home and abroad, since the 1^st of January 2016.

Of course, there are many new year dates celebrated by different people, communities , cultures, and religions. But the over-arching one, Christian and originally Catholic as it is, standing atop an ancient Roman  (Julian) calendar,  is universally acknowledged and celebrated.

The Gregorian Calendar was devised in the reign of Pope Gregory XIII, in 1582; back in the day when popes were puissant.

Next month, on 8^th February, we will also welcome the Chinese New Year, and enter into The Year Of The Monkey. The monkey year is characterised by sudden changes, disruption, even delight, at least in some quarters.

But 2016, seems to have an explosive quality to it, sometimes a prelude to war and devastation, chaos, and wild swings of the pendulum.

It may be why, even as India and Pakistan attempt, once again to resolve their differences peacefully, there was a fresh terrorist attack on a major air force base at Pathankot. And North Korea, unofficially nuclear weaponised since 2006, let off a powerful hydrogen bomb underground, occasioning a 5.1 Richter scale event.  

The Chinese new year is worth a special mention because, in many ways, the paroxysms of the Chinese economy, and the changes it will force, both in China’s global stature, and its stance, and its ramifications felt far and wide, may well define 2016.

Just as perhaps, the precipitous decline in oil prices and the geo-political power equation rearrangements it occasioned, marked 2015, the year just gone by.

And, of course, there was in 2015, at last, after a pause that lasted over a decade, the first little uptick in US interest rates. It was speculated upon as imminent for at least two calendar years before it finally happened. And that too, with just a 0.25%  hike.

It signals, tentatively enough, that America is growing its economy again, that it is stable now. This even though the US Federal Reserve Bank Chairman Janet Yellen has reserved the right to change course once again, if warranted by subsequent events.

Meanwhile, the US dollar, the world’s trade and reserve currency, has been getting stronger in anticipation. Investment funds have been gravitating back from the emerging markets, even from still economically beleaguered Europe,  once more towards the behemoth of the  US bourses.

This is not altogether helpful, however, for US exports, including its high technology military exports and its civilian aeroplanes. But, the US government has many ways to soften and sweeten such deals.

But here, only days into January, we have the Chinese economy under fresh stress. There have been two 7% plus tumbles of the Shanghai Composite Index in the first week of January, and sudden, 4% plus devaluations of the Yuan, its external currency.

Says billionaire international investor George Soros, as reported in The Economist, the bells have begun to toll for a recession in China.  

In addition, respected market savant Marc Faber, thinks lower global liquidity due to fallen crude prices, may lead to the US crash of 2016, capable of dwarfing that of 2008. Others, will probably also add their voices to this gloomy outlook going forward, citing their own, and varied, reasons.

One point made by some leading economists, including our own Raghuram Rajan of the RBI, is that prolonged stimulus involving billions of dollars a month, both in the US and in the EU, has only kicked the recession, even depression, can down the road.

These analysts expect a day of reckoning to come, when a sharp adjustment against the trillions in debt is inevitable. And it could come because of unexpected external events, the famous Black Swans.

However, it must be said, austerity as a nostrum, the binary alternative, has not been politically popular wherever it was initiated in recent years, and had to be rolled back. And when it was last enforced, it resulted in the Great Depression of the 1930s, that not only caused untold hardship to millions but lasted for over a decade.

And it was massive public expenditure financed by deficits, followed by the economic boom of war production during WWII, that pulled the US out of it in the end. Are we then perhaps headed for WWIII? Mankind cannot, of course, hope to survive a nuclear war of any kind, and therefore, may have to content itself with opening the safety valves of several lesser conflicts!

But now, unavoidably, a $12 trillion Chinese economy, with many unviable secrets born out of totalitarianism, second only to that of the US, in absolute, and not PPP terms, is apparently  going down. The world economy will be deeply roiled by China doing its best but likely failing at staving off a recession.  

This coming after more than three decades of roaring growth, that has been slowing, ever since 2008.  

The cracks are appearing all over: in China’s stubbornly inflated external currency, the Yuan, being devalued now by 3-4 percentage points, in a sudden jerk with more to come; in its vanished exports, badly compromised banking system, its opaque state owned companies, the rampant, somewhat irrational speculation in the Shanghai Composite Index by millions of mainland punters.

Then there are its China financed infrastructure contracts around the world that are still insufficient to propel the necessary growth in the economy. The vast acreage of empty housing and offices in its major cities. The over-built infrastructure with poor returns on investment, in a slow, inward looking economy today, still trying to grow its domestic consumption to substitute for the drying up of exports.

There is the huge military expenditure, on the substantial and powerful PLA and the Chinese armament industry. The defence industry is difficult to finance with insufficient external demand, and doubly hard to sustain in a recession.

China’s typical forward policy, using muscular diplomacy, with massive grants and soft loans to pave its pathways, also suit a rich country better. Of course, there are trillions in reserves from the good years, but how long will they last?

Saudi Arabia, for example, calculates it has enough to hold out for 6 or 7 years if it does not cut expenditure. But the ruling Saudi royal family of 2,000 princes, are dealing with a very small population of just 28 million, and even then it is battling domestic unrest already.

47 people, one Iranian Shi’ite cleric  and 46 Sunnis from the 85% majority community were beheaded recently for ‘treason’, in a blood- letting not seen since the 1980s.  

Subsequent tensions with Iran have resulted in diplomatic relations being snapped.

And the aerial pounding of Shi’ite rebel Houthis, backed by Iran, in neighbouring Yemen, is not yielding the results hoped for. Instead, it is taking on the contours of Saudi Arabia’s own Vietnam.

And if we talk of the threat from ISIS, not so much in Saudi Arabia, but in Syria, Iraq, Libya and so on, there is a stark picture of West Asian instability.  

The oil scenario   is unrelenting too. The abundant US shale oil industry, able to break even at $ 20 a barrel, even the current prices in the mid-thirties ( India’s own average purchase  is at $29 a barrel now), delivers a profit.

Saudi Arabia, it is reckoned, needs a $ 105 price per barrel to sustain its present rate of expenditure.  But this level of over $100 a barrel is unlikely to come back, unless the global glut, via catastrophe, turns into scarcity once again.

Yet, economic austerity of any kind could upset the apple cart for the rulers in both Saudi Arabia and China.  

Also, even as international demand from the previously oil rich countries for goods and services decline, it does likewise from China too. And this includes the consumption of China’s neo-rich. And, most importantly, the millions and millions of people in the Chinese countryside, with not much to fall back upon, could be a source of unrest.

There is also the concerted effort globally to reduce long term dependence on fossil fuel in favour of ‘green’ solutions, reduction in global warming, and  toxic emission, to consider.

By the time we get to 2017, we can certainly congratulate ourselves, if India, becomes one of the few countries that manages to grow strongly, riding on the back of a much smaller oil bill. As for the world, it will have done well enough if it does not spin into a catastrophic war it cannot control.

For: Swarajyamag

(1,429 words)

January 8^th, 2016

Gautam Mukherjee

Give Peace A Chance

Give Peace A Chance

New year 2016 for India has been threatened already by the fidayeen attack at Pathankot Air Base, just 40 km from the border with Pakistan.

And this, predictably, and true to past form, just days after prime minister Narendra Modi’s impromptu  goodwill visit to Lahore on December 25^th .

Not only was the terrorist intention to destroy parked aircraft in the technical area of the massive 1600 acre forward base thwarted, but the six intruding fidayeen from Bhawalpur were all killed. Their offensive mission was an utter failure. They were able to kill seven brave Indian soldiers, but at random. That there were Indian facilitators on our side of the border is a much more worrying thought.

However, if the point of the attack on the part of the alleged JeM planners was to destabilise the fresh attempt to resolve differences between India and Pakistan - it remains to be seen if the Indian government goes ahead with 

Foreign Secretary level talks scheduled for January 15^th.

All cold logic seems to suggest that the India-Pakistan talks should go on, despite this atrocity, and others expected, in future. To let the rag-tag and fanatical fidayeen set the diplomatic agenda between the two neighbours would be a mistake.

The endeavour, on both sides, should be to reduce the space in which those who would perpetuate enmity between our two nations can manoeuvre. 

This can come about in incremental stages. It could begin with creating vested interests on both sides of the border in favour of increased trade and commerce, cultural exchanges, and cooperation to the extent possible in advancing the affairs of SAARC.

Though the medium term goal should undoubtedly be to settle the Kashmir dispute once and for all. This, probably by turning the LOC into a fait accompli border by tacit understanding, and allowing free, if supervised movement, of people and goods between J&K and POK/Azad Kashmir.

The danger at this point, which the Modi government seems to have grasped, after several false starts, is that there are those in Pakistan who want peace, just as there are people in India who also want it.

At the same time, both countries have those who want the hostile atmosphere to perpetuate. In India, the anti-talks sections are mainly political entities, some in the opposition, and others in the ruling NDA.

While in Pakistan, it is supposed that they include the powerful Pakistan Armed Forces, its accomplished intelligence agency the ISI, and, of course, the many terrorist organisations and loose cannon ‘non-state actors’.

The developed world, led by the US, is very keen that the two nuclear powers reduce tensions at the earliest, and find common ground to do so.

They have long been trying to facilitate dialogue between the two countries from behind the scenes, and have exerted quite a bit of subtle diplomatic pressure to this end.

The other worthwhile dividend, not only for India, and the West, but other vulnerable peoples elsewhere with large Muslim populations, is to refuse the extremists a chance to take over centre- stage.

Pakistan’s terrorists not only attack and foment jihad against India, Afghanistan, China, and the West, but they also attack the Pakistani establishment from time to time.

They constantly attempt to radicalise the polity to adopt fundamentalist Islamic tents favoured by the harsh  Salafat/Wahabi sects from Saudi Arabia. Another unpleasant aspect, apart from their acute bloodthirstiness, is that they are often deeply hostile to women and their emancipation.

All this red hot fanaticism, in a country armed with nuclear weapons is very dangerous for the world at large. The extremists will not listen to anyone if they get hold of nuclear weapons, and have no apparent fear of mutual annihilation.

For India, not to talk to the saner political voices from Pakistan, would be a huge and historical mistake. Short term justifiable pique at wanton and repeated attacks of terrorism on our soil should not blind us to what is at stake here. We cannot afford to tar the whole of Pakistan and its people with the terrorist brush. This would be playing into the very hands we should seek to avoid.  

Therefore, India must not assume that the Pakistani state is necessarily in league with the jihadis any more. This, even though we have been proved wrong time and again in the past.

The time may have come at last when we are looking at a post-binary scenario. The Pakistani reality now contains too many spokes of the wheel of power aimed at its centre.

 This time prime minister Nawaz Sharif seems to be reaching out with the approval of the Pakistan Army top brass. A recent solo visit to America by Pakistan Army Chief Raheel Sharif seems to also suggest this, because it just preceded the Indo-Pakistani thaw.

The formidable ISI is also a creature of the Pakistani state and Army, and has no choice but to fall in line if the policy changes. The fact that the LoC and other border areas have been silent and free of any cross-border firing since the Modi-Sharif meetings in Ufa and Paris, is perhaps indicative of change.

Having said this, there may still be rogue elements at play, particularly amongst those recently retired, and now in cahoots with terrorist outfits such as JeM and LeT.

Most fidayeen are very well armed, and reasonably well trained by ex-army trainers. But their deadliest feature is their willingness to die for the cause in multiple suicide missions.

This degree of commitment is largely absent in the regular Pakistan Army, that has not generally come off better in encounters with the Indian Army.

But terrorism internationally is a blood-soaked business, reverberating with fanatical ideology in the minds of ill-educated and poverty stricken youngsters, all dreaming of glory and death.

Prime minister Modi and prime minister Nawaz Sharif are standing once again at the crossroads, with a chance of fostering a lasting peace  between  the two countries.

However, nobody in his right mind can suggest that it won’t be a rocky road, replete with betrayals and set-backs. But geographical neighbours, particularly nuclear weaponised ones, have no choice but to come to an understanding.

Israel, which has nuclear weapons, surrounded as it is by hostile Arab neighbours, lives with an uneasy truce, despite its disciplinary forays outside its borders, even though none of its neighbours are, as yet, nuclear powers.

India’s choice is to legitimise and deal with those in Pakistan who would make peace and seek cooperation, rather than have to confront those who would seek to destroy us, even if it means certain obliteration in return.

For: The Pioneer

(1,100 words)

January 5^th, 2016

Gautam Mukherjee

Only Massive Public Spending On Infrastructure Can Deliver On Promises

Only Massive Public Spending On Infrastructure Can Deliver On Promises

The passage of this year 2016 will cross the half-way mark for the Modi government. Right now, FDI is looking good, particularly from Japan, even exciting, but there is always a lag. And the urgently needed new jobs have not been created as yet.

The economy as a whole has only recovered to the extent that oil prices have dropped. Petroleum ministry estimates for FY 16 suggest that India will buy $88 billion worth of crude, down from $112.78 billion in 2014-15, a 21.7% reduction in the bill.

This, even as the overall quantity imported will be roughly the same at 188.23 million tonnes in FY 16, as against 189.43 tonnes imported in FY 15.

It is interesting to know that the oil bill was only $3.518 billion in 1998-99, and the quantity of crude imported that year was a mere 39.8 million tonnes. All along the line however, India imports at least 80% of its ever expanding appetite for crude.

But now we are saving thousands of crores, Rs. 138, 714 crores between FY 15 and FY 16 alone, and this money can well be deployed towards building infrastructure instead.

Gold imports, that other perennial, have also eased a bit, partly because of the government’s efforts to winkle out domestic gold in private hands and places of worship, and partly because of higher import duties. But exports of everything are sharply down. Manufacturing, a traditional job generator, has actually shrunk.

The non-functioning of two parliamentary sessions on the trot have put paid to the government’s legislative agenda. And after two nondescript budgets, it is hard to expect very much from the forthcoming one.

Ergo, this government must rely on its executive and administrative actions to get ahead.

But the current picture is far from good. The property market, accounting for 17% of the economy, lacks sufficient end-user demand, despite hype about affordable housing, smart cities, and housing for all by 2022.Prices have corrected some 20%, but there’s still  no buyers.  

Of late, there is talk of foreign PE and vulture funds getting in on some of the projects, as well as other distressed assets of over-leveraged and bankrupt companies in other fields. But even this is not exactly taking off.

Agriculture is doing poorly, with three consecutive droughts, and none of the promised value-addition. Where is the modernisation and food processing industry? Even the early initiatives on marketing support seem to have fizzled out.

The banks are underreporting bad debts, and continue to be hugely under-capitalised.  The stock market, another source of corporate funding, has turned in a disappointing 2015. However, there are indeed a lot of hopeful IPOs lined up for 2016.  

The debt market has done well, given its steady, over 8% plus returns. This is good, particularly if one borrows at near zero abroad, like most FIIs do. However, the constantly weakening rupee takes the shine off it somewhat.

The e-Commerce space, and that of impressively valued Start-ups seem to be the shape of the future. But, they are already cutting into brick and mortar retailing, as well as the established IT services space.

There are now also over a billion cellphones in Indian hands, most of them inexpensive smart phones, but the broadband speeds and chronic bad coverage/call drops, make plans for a digital India seem unlikely.

New initiatives like Make in India and Swacch Bharat will deliver some employment, particularly in defence manufacturing, but not a lot, as even Niti Aayog admits.

The good news, is really all about oil/gas and some other essential commodities and metals. Barring a catastrophe in, say Saudi Arabia, this situation will sustain through 2016 and beyond.

Amongst major economies, China’s weakness is only getting worse, with a 7% fall in its highly speculative mainland stock market, the Shanghai Composite, on the 4^th of January.  It necessitated a suspension of trading, and caused sympathetic jitters everywhere else. What will happen in the coming days remains to be seen. China will struggle to keep its $12 trillion economy afloat for some time to come. Let us hope there are no Black Swans coming out of the dragon in 2016.

India, small in comparison, at only $ 2 trillion, is still considered a major economy. Because of its volume energy purchases, it is now being wooed and pursued by producers, from West Asia and beyond.

Qatar, in a pragmatic move, recently halved its gas prices to India, and waived billions in liability payments accrued because we wouldn’t buy its gas at the old prices.

The Modi government is also concentrating on reducing dependence on fossil fuels by ramping up non-polluting solar installations and nuclear power.

But, from the point of view of the voting public, it is the urgent building of massive public works alone that can provide substantial employment today. This means highways, ports, dams, canals, urban renewal - all overdue and wanting. And much depends on the speed of implementation.

Some of this is already happening. A recent Financial Express report indicated that in November 2015 , Rs 31, 250 crores worth of  infrastructure contracts were awarded. The value of the tenders is up 60% over a year ago. But, let us remember, this is movement from a standstill.

To make a real difference, infrastructure building must leap-frog ahead,  using government funding, so that the Modi government can fulfil its key promises of vikas  and acche din.

For: Mail Today

(898 words)

January 5^th 2016

Gautam Mukherjee