The Worm Always Turns

The Worm Always Turns

India’s economy, structurally sound, and much admired by the international rating and lending agencies for its probity, has been beaten down to a growth rate of  5% GDP in the June 2019 quarter. Growth has also been slipping for five quarters.

This has excited much comment, but needs to be seen in perspective. Domestic consumption is sharply down, jobs are being lost in the formal sector, and even core sector parameters are in the doldrums. But, given all this and more, there is no existential threat whatsoever.

We are still ticking over, making treaties, purchasing armaments, strengthening our defences, furthering our diplomacy and international reach. We hold strong foreign exchange reserves, even as chunks of foreign investment exit the stock market, and the rupee takes the battering of its life.  

Most developed countries, suffering from miniscule growth, or mild to severe recessions over a prolonged period, think 5%  is still enviable. But of course,  it is a sharp come-down from our own peak performances of the recent past.

As an emerging economy, though even now in the top ten, if 5% were to become the annual figure instead of just the latest quarter, we have to see it through the prism of the embedded growth propulsion in our DNA. And this, for decades to come. There is much to be built, improved and modernized. There is always a demand push towards addressing huge deficits in infrastructure and systems to tap our full potential in all sectors. This downturn is cyclic.

However, given resource constraints and a massive 1.3 billion population, our relatively responsible management of the economy, despite inheriting almost 11% of banking assets in NPA, we are not doing too badly. And we are indeed collecting on the Non Performing Assets by a more determined pursuit of economic offenders than ever before in our 72 year history. But the very cure may be the culprit too. Austerity in government money management has reduced demand and consumption.  

On the plus side, again in an unprecedented way, the Modi government has itself steered clear of all scandal and corruption since 2014. This has been combined with delivery of welfare to the poor without leakages.

Our sovereign and domestic debt levels are modest yet, with even domestic debt at around 80% of the $2.8 trillion economy and external debt at some 5% . We will, it appears, never become a banana republic at this rate! The Indian government has never defaulted on a payment obligation so far.

 This debt scenario is the main difference with the mature developed economies, many of whom owe many multiples of their GDP. Some, are to all intents and purposes bankrupt, only kept afloat by their lenders. Others are having difficulties just servicing the debt, let alone bringing it down or spurring growth.

The current 5% in India is comparable to the 4.7%  in the quarter at the end of UPA II (2013).  It had tumbled from a high of over 9%  at its peak. And this, with inflation surging in the double digits too. The UPA could not even blame demonetization or GST, as it does now with its ravaged and much diminished presence. However, high oil prices did plague it at the time.  

This was the state of play under the stewardship of eminent economist and former Prime Minister Manmohan Singh. It is therefore quite droll that Singh is making bold to vehemently criticise the present position.

Through all of Modi 1.0, the economy turned in a performance of over 7%  in GDP despite inheriting a scorched earth economy. The other chief parameters such as the fiscal and current account deficits and inflation have also been admirably controlled throughout, and continue to be in check into the first months of Modi 2.0.

However, because of the sharp slowdown, the government is now easing money supply to different sectors and reducing interest rates. It is also removing road blocks to FDI. In addition, the PMO itself, rather than the apparently Leftist and 1980s style Garibi Hatao Finance Ministry,  is working on each distressed sector. This  includes those that can provide an early boost, such as Real Estate and the Stock Market.

Indications are that business, industry ,  the farmers, rural India,the  stock market and international investors  have confidence in, and are appreciative of, the recent government efforts to revive growth. Particularly after a most peculiar budget presentation in July. The unfeeling budget in July caused a lot of economic damage in the aftermath, but the recent response of the government to sharp all round criticism has helped matters immensely.

Now the doomsday scenario projected by some of the government’s critics is far from justified. The corrupt, mostly from the decade long UPA regime circa 2004 to 2014, and its adherents, are being brought to book alongside. And this is indeed very  uncomfortable for those who may be next in line.

There are some international headwinds from the battle of tariffs between America and China but this is affecting the whole world. The tensions with Pakistan and China post the turning of J&K and Ladakh into separate Union Territories could, however, have a silver lining. The focus has shifted to PoK as a bargaining chip for India. America wants India’s military help in Afghanistan, where India has sunk over $20 billion in Afghan infrastructure already; and China wants India’s participation in the CPEC. PoK could well be the price for India’s cooperation. Other countries such as Russia, France and Britain, all permanent UNSC members, may play along too, goes the informal buzz.

A total solving of the Kashmir imbroglio with gain of  long lost territory, along with a defanging of Pakistan, will have strong economic benefits in the medium term.

The ideal way to approach the current economic situation therefore is to regard it as an opportunity that may not present itself again.  

We have mature skills and diplomacy on our side today, and there is nothing wrong with the economy that can’t be fixed. Prime Minister Narendra Modi is acutely conscious of the importance of boosting the economy to aid India’s progress, and enjoys a very high level of public trust. He is ably backed by a very can-do Home Minister in Amit Shah. This has resulted in moving forward the safety and security of this country, diminishing threats from multiple directions. This too has long been a drain on the exchequer.

Large sections of those MPs and MLAs who sit on the non-treasury benches are also supportive of this government. All this makes for a very worthwhile economic springboard for the near future.  

The early life of legendary American entrepreneur J Paul Getty presents some pointers on what is possible. With an education in California and Oxford, Getty became, not a diplomat, as he first thought, but a freelance oil prospector and dealer in oil leases in Oklahoma.

This was early in the 20^th century, when the so called “seven sisters”, The Standard Oil Company, Shell, Union Oil Company, General Petroleum Company, Richfield Oil, Texas Oil Company, Tide Water Associated Oil Company, were huge and integrated, and went on to dominate the international oil business too.

Getty and his father were pioneering, seat-of-the-pants, independent drillers, known as “wildcatters”.  The Gettys leased likely plots, rigs and crews, like many others, but repeatedly struck viable quantities of oil. In a short time, apprenticing under his father, helped by his legal acumen, feel for a likely lease, and experience, J Paul Getty parlayed his own “gushers” into a first $1 million in profits by the age of 24.

And then, to everyone’s astonishment, he retired to two years of utter hedonism. Bored with the exclusive life of pleasure, Getty came back into the oil drilling business at 26. Thereafter, he multiplied his fortune, eventually buying a superior building block. Getty purchased his way into one of those large integrated oil companies by patiently accumulating its common shares. He started in after the Wall Street Crash of 1929, when bluechip stocks were severely beaten down. In time, almost a decade, he had control of Tidewater, a big oil company that had refining, marketing and distribution reach, but bought some of its crude oil from others. Later in the day, by now a billionaire, Getty competed with the Seven Sisters in Arabia too.

India is at a crossroad and watershed today, but there is no need to expect anything but greatness and growth in its future. It has a clear vision of where it wants to go with its $ 5 trillion and $10 trillion roadmap, and its destiny is to be in the top three economic powerhouses of the world. With no structural shortcomings, Modi is, and will continue to steadily take the right policy decisions. This will strengthen  the economy/infrastructure, security, and technological modernization of this country. There will be holistic and all-round development.

Judging things quarter-to-quarter is an American practice we have adopted, and it  has its advantages, but we should not allow ourselves to lose the woods for the  trees.

(1,504 words)

September 3^rd, 2019

For: SirfNews

Gautam Mukherjee

Gear Changing From A Soft Power To A Hard One

Gear Changing From A Soft Power To A Hard One

Bill Clinton administration staffer Joseph Nye is credited with galvanizing public attention by coining the term Soft Power in the pages of Foreign Policy. It became a defining feature of the post Cold War era.

Americana was seen as an aspirational magnet. People in many countries wanted to be a liberal democracy like the USA. But, as always, the turn of the 20^th century President, Theodore Roosevelt’s dictum of “Speak softly and carry a big stick” underpins both the limits of, and the animating engines, of Soft Power.

Soft Power is broadly described as the ability to attract and co-opt, rather than coerce. Gandhian Ahimsa and Non-Violence ruled modern Indian political ideology for decades, even as it was always a matter of opinion if it actually got India its independence from Britain.  Hard Power was regarded, in Nye’s time, in the late 80s and 1990s, as an enumeration of military muscle - missiles, warheads, tanks, aircraft, submarines, ships, troops and the like.

But in 2019, with a greater number of nuclear armed powers, and an array of new small and large hard powers such as North Korea, India, Pakistan, Israel, and emerging ones like Iran and Japan, it may well represent a shift in tonality and economic heft that denotes greater resolve and confidence. Nuclear War, after all, is a zero sum game. 

India’s emerging hard power is backed by wherewithal including economic power, markets, military prowess, intelligence gathering, formal and informal alliances, and tacit support amongst other countries.

Of course, a leading feature of soft power, used extensively in foreign affairs generally, is persuasion. And this has been ramped up, from the very start of Modi 1.0 to an unprecedented degree. The main feature of this was, and continues to be, bilateral state visits by the Prime Minister.  Over 100 nations have been covered, some after decades, or for the very first time, with excellent results.

But the tone domestically, in matters small and large, and in India’s more transactional national self interest in dealings with other countries, has undergone a sea change. National icons Sardar Patel, Veer Savarkar, Subhas Bose, Syama Prasad Mookerjee,  AB Vajpayee, some long neglected, have replaced Nehru and the perfunctory genuflection towards Mahatma Gandhi.  

There is also a marked quickening of the pace. And this difference isn’t being reflected just via the actions and pronouncements of the Prime Minister and Home Minister. It is seen on a broader basis across the government and the NDA, and inclusive of Mohan Bhagwat in the RSS amongst others. The call for population control that the Prime Minister put on on Independence Day, has emanated from the RSS.

Chief Minister Yogi Adityanath banned the performing of Namaz on Lucknow and UP roads. The Union Urban Affairs Ministry has asked 220 ex MPs to move out of their Lutyens’ zone bungalows and other government accommodation within seven days or have their electricity and water cut off.

Former Finance and Home Minister P Chidambaram, underground, and shamelessly on the run from the CBI and ED, with a Lookout Notice issued against him, is on the brink of being arrested for custodial interrogation. He seems to have exhausted his stock of anticipatory bail from various courts.  This high profile set of six cases against Chidambaram is a showcase of the law being applied to the high and mighty.

Additionally, Madhya Pradesh Chief Minister Kamal Nath’s nephew and Executive Director of Moser Baer, Ratul Puri, accused of bribe-taking and money laundering, has, in fact, been arrested for similar custodial interrogation.

The Congress Party, predictably, is in a panic because a number of other notable leaders, could be next.

Defence Minister Rajnath Singh hinted at a shift from India’s No First Use Nuclear Weapons Doctrine, echoing former Defence Minister Parrikar’s views on the subject, and setting the cat amongst the pigeons in a sabre-rattling Pakistan. He also said that if there is to be Kashmir talks with Pakistan, (only once cross-border terror stops), it will be about the illegally occupied PoK henceforth.

The only senior cabinet minister to strike a discordant note from this picture of greater strength and optimism is Finance Minister Sitharaman. She has made a spate of socialist and anti growth remarks and tabled a weak budget that has hurt business and investor sentiment resulting in capital flight. And this has been done, most insensitively, in the face of a sharp downturn.

But, since the Prime Minister knows that India’s hard power depends quite substantially on its economic growth, he made it clear, by reiterating from the ramparts of the Red Fort on August 15^th , that he intends to grow the Indian economy into $ 5 trillion by 2024. 

 The government will have to flesh this intent out in short order. The Prime Minister’s task forces are hard at work to suggest remedies for various distressed sectors. Given popularity ratings of around 70% after the end of Articles 370 and 35A, on par with his ratings in 2014, Narendra Modi is both trusted and widely believed.

The Triple Talaq Bill was turned into a proclaimed Act on the third determined try, with the NDA driving a very effective wedge through the non- government benches in the Rajya Sabha.

The historic abrogation of Article 370 and 35A were introduced first in the Rajya Sabha by the Home Minister himself. Before that, Amit Shah and NSA Ajit Doval cleared out all Amarnath Yatra pilgrims, other tourists and foreigners from the Kashmir Valley. The nullification of all the operative sections, was passed first in the Rajya Sabha, where the government does not yet have a majority. Copious debates were held in both houses over two days, before J&K became one of two new Union Territories.

That this seminal matter hanging fire for 72 years was tackled so early in Modi 2.0, suggests that a number of other long pending agenda issues, such as the Uniform Civil Code and the construction of the Ram Mandir at Ayodhya, could also see the light of day soon.

There is a matter-of-fact shift in the way things are done too. While Jammu and the separate UT of Ladakh welcomed the new status, Section 144 was clamped on large sections of the Valley. In addition, a communications embargo was imposed, and politicians likely to incite violence were put under house arrest or preventive detention.  Others, such as irate Congress and CPM politicians, were not allowed to enter the Valley, even if they turned up uninvited at Srinagar airport.

In a sharp departure from the past, there is no government attempt to endear itself with sections of the populace in the Valley who may be disgruntled, and no reference to the winning of hearts and minds. It is law and order first and justice for the people of India as a whole.

A Delimitation Commission has already been appointed by the EC to go into more effective  representation  of the people in both Jammu and Kashmir sections of the Union Territory. This is likely to result in equal representation for both Jammu and Kashmir, and should be completed in about six weeks.   

Externally, Pakistan was stymied at the UNSC despite backing from all-weather ally China, and an opportunistic Britain. Thirteen of the 15 UNSC members including the current Chair, saw the developments in J&K and Ladakh as an internal matter because of India’s extensive diplomatic groundwork.

That China, which is in illegal occupation of Indian territory at Akshai Chin, and is facing strong protests for its centrist policies in Hong Kong, should accuse India of unilateralism, is ironic. And Britain is facing pressures to its unity from both Scotland and Northern Ireland because of its pursuit of Brexit, particularly a no-deal Brexit. That it should have the temerity to comment on India at the UNSC, is probably a throwback to imperialist envy .

Pakistan’s latest plan to take the matter of alleged human rights abuses in Kashmir to the ICJ is not likely to meet with any appreciable success either.  

In a military caution, Pakistan and China are unhesitatingly being told that any interference or adventurism will meet with an appropriate response.

Our attitudes to democratic protest and dissent have changed too.  The government can name and punish terrorists now. The Opposition is now only being offered the respect its electoral fortunes and representation deserve. The contours of Modi’s New India are gaining definition.  

For: The Sunday Guardian

(1,396 words)

August 21, 2019

Gautam Mukherjee

Modi-Shah-Doval Turn The Tables On The Forces Of History

Modi-Shah-Doval Turn The Tables On The Forces Of History

Has Paradise been regained on the snowy slopes of J&K? And in its markets and valleys? Is everything bright once more this Monday 5^th day of August in the year 2019? Will tourists and pilgrims flock into the union territories henceforth without the shadow of a gun? Will the economy of the region grow unfettered at last?

Has Modi 2.0 delivered on one of the longest standing promises of the BJP within its traditionally Teflon first 100 days?

Solving the problems associated with the vexed quango status of J&K is a momentous event on par with the coming down of the Berlin Wall within the annals of contemporary Indian history.

The Indian economy may be bad at present, but the solving of the building of the Ram Mandir at Ayodhya after similar decades, now seems within reach too.

There is enormous credibility restored to the government at one fell swoop, after acute criticism on the handling of the economy in recent times. But with this, there will be no doubting Modi’s leadership for the rest of this second term. The economy, one feels sure, will also be properly and effectively addressed by this government.

Heaven on Earth, is how Mughal Emperor Jehangir described the territory in itself for its sheer beauty, when he visited it in the 17^th century. But Kashmir has been long lost in the mire for 72 unfortunate years.

This situation probably began via the petulance of the last Maharaja, Hari Singh, of the erstwhile undivided kingdom. The haughty and status quoist attitude of Singh and his Hindu Dogra predecessors, was indulged by the British Raj.

They probably wanted access to a quiet paradise that many holidayed at, recuperated in, or retired into. The touch-me-not ism of the kingdom, indirectly ruled by the British through a Resident, was encouraged. It was an India, after all, that stretched from the borders of Afghanistan to distant Burma, and included Sri Lanka and the Gulf States within its remit. And there was just one paramount power. And it flew the Union Jack.  

In 1947 however, to teach a reluctant Hari Singh a lesson for his stubborn hubris, Lord Mountbatten, decided to intervene. Singh was jolted for choosing independence in a vastly changed world by the last Viceroy, and by then, the first Governor General of India.

Mountbatten allegedly encouraged his Pakistani counterpart, MA Jinnah, to quickly overrun part of Hari Singh’s territory before he had time to react with his largely decorative princely army.  

What Jinnah’s “irregulars” took, is what is today’s PoK, and the high reaches of Gilgit-Baltistan. This forced Singh into the hands of a waiting Nehru, like a comfortable cricket catch.

Nehru huffed his way to the United Nations, accusing Pakistan of aggression, asking for help for the restoration of PoK, but he didn’t really have his heart in it. He didn’t, it appears, particularly want PoK back as an act of tacit goodwill. 

Nehru was quite naive for all his intelligence, and hoped that Pakistan would content itself with what it had wrested out of Kashmir. This, alas, was not to be.

This more so after his daughter Indira Gandhi as Prime Minister helped to lop off East Pakistan into Bangladesh in 1971. In an attitude of revenge ever since, Pakistan has been fomenting trouble via its policy of “a thousand cuts”, not only in J&K, but wherever it could within India.

To a certain extent The Pakistani GHQ’s raison d etre is based on its hostility to India, which it calls an existential threat. Its terrorist-based war machine backed by its intelligence agency ISI and regular troops, is today in trouble. Kashmir is now a Union Territory integrated into India. Fighting it becomes warring with India directly, and not aid to a so-called home grown separatist movement. It cannot be portrayed as such.

Recent military resolve shown by India in response to Pakistani aggression is also something that has reduced Pakistan’s room to manouevre.

But even in the original sin of the initial surrender, Hari Singh’s ego held out for a bizarre exceptionalism, eschewed by over 500 of the other Princes. Muslim majority Hyderabad and Junagadh did try to hold out with specious arguments, before caving in and signing their Treaties of Accession tamely, and on the dotted line.  

Since then, the growing mess created by Article 370, Article 35A, in J&K, as it came to be known, has haunted both India and J&K. It has been a long seven decades of the politics of blackmail and entitlement practiced by Sheikh Abdullah, his family of successors, and other Valley politicians, mostly his relatives, aided by the mainstream Congress Party.

It has kept J&K a perpetually disturbed state and consumed the lives of many people and enormous resources that India could ill afford.

The legal beagles will pore over the audacious action of the Modi government and cheesepare at the provisions of the Presidential proclamation for some time to come. They will examine the gazetting of its provisions, the Home Minister’s speech in the Rajya Sabha, the bills and acts pertaining to it, the debates and arguments presented in parliament and outside it. But is there any worthwhile political will to back a challenge? From the looks of the opposition camps, it looks very tepid.

Besides the stunning fait accompli is such that it stands little or no chance of being effectively challenged, let alone over-turned by legal means.

The integration of J&K into separate Union Territories - at Ladakh without legislature, and in Jammu and Kashmir with a legislature, has ended the  constant political friction probably once and for all.

It is however natural for those who benefited from exploiting the earlier arrangement, to protest the sudden set of steps taken over the last few days, culminating in the decisions taken on the 5^th of August. Can they upset the apple cart though? This is no more likely than the effects of Maharaja Hari Singh’s displeasure.  

Will the spirit of Syama Prasad Mookerjee, martyred in the cause of Kashmir’s integration, animate future development in an integrated J&K plus Ladakh?  

Mookerjee is a towering figure and inspiration for the present dispensation.  He was also the founder of the Jan Sangh, the predecessor of the BJP, and the saviour of West Bengal from being swallowed up by Pakistan. This apart from being a leading light of the Hindu Mahasabha and a sometime minister in the Nehru cabinet.

Under the architects of the integration of the newly named union territories, mainly Prime Minister Narendra Modi, Home Minister Amit Shah and National Security Adviser Ajit Doval, Mookerjee’s vision of a Kashmir as a fully integrated part of India, will certainly go forward.

Can we expect bloodshed and revolt in the Kashmir Valley and parts of Jammu, and its echoes in the rest of India including New Delhi? It is most unlikely. 

Instead, it will expose the lack of traction of those who have long claimed that any attempt to revoke Article 370 would result in mayhem.

Congress, long a supporter of the erstwhile arrangement in J&K, is caught in a cleft stick. Though it may be emotionally and materially opposed to the new development, it is, on balance, wary of being seen as its most vehement opponent. Many within it, including legal luminary Abhishek Manu Singhvi, called the government’s move “politically astute” irrespective of its legal underpinnings.

What effect will it have on Pakistan and the wider world beyond it? Pakistan will be worried about Indian claims on PoK and Gilgit Baltistan intensifying now.

Others, including ally China, America, Europe, Russia, the United Nations, the Gulf and North African Arabs, Saudi Arabia, or the OIC in general, are unlikely to back any Pakistani protest.

Turkey and the Palestinian authority might, but they are in no position to make a difference. It is, quite clearly an internal matter for India despite Pakistani efforts on behalf of Pakistani separatists.

In recent days, Pakistan had attempted to revive its proximity to America, using the Afghanistan Taliban as a bargaining chip. This may suit America that is eager to leave Afghanistan to its own devices after nearly two decades of futile effort to subdue its warring factions. But, the new Pakistani tilt towards America probably does not go down well with China, invested to the tune of many billions in the CPEC.

China may well be inclined to back any renewed Indian claim on PoK and Gilgit-Baltistan over the medium term, in exchange for a softening and limited engagement on the part of India with the One Belt One Road and CPEC initiatives.  

A new world of improbable opportunity may have just opened up.

(1,441 words)

5^th August 2019

For: Sirfnews

Gautam Mukherjee

Dismay, Disappointment, Distrust: NDA's Smoke & Mirrors Economy

Dismay, Disappointment, Distrust: NDA’s Smoke & Mirrors Economy

A lot of tides have come and gone on the Ganga since the full budget was presented on July 5^th    . It was delivered by an eager Nirmala Sitharaman. She, who is educated at the Leftist citadel JNU, and joined the Party only in 2008.

The freshly minted Finance Minister didn’t, as Modi himself put it, pause for a sip of water during her two hours plus read out of the most free form budget ever presented by the Government of India.

It initially bamboozled quite a few with its covering fire statements about a $5 trillion economy by 2024 based on a likely $ 3 trillion economy by the end of this very fiscal.  

It has been only about three weeks since then, but, it seems like an interminable age of realization. This government has begun with a sharper left turn than all the five Jaitley budgets and the interim one presented by Goyal.

The Modi 2.0’s roadmap for the future- is a dusted off update of Indira Gandhi style socialism. There is scant attention to revenue generation through growth. It resorts to welfare spending on the poor, grown up with additional zeros better suited to 2019. There is emphasis on taxation of the rich and disdain for “money making”.

The central idea is to blatantly reward the nearly 50% of the voters, cutting across caste and creed, that enabled a better win for the BJP than 2014. This amalgam of urban and rural poor is the new BJP vote bank.

That the Modi government has thought it best to focus on this constituency by providing it tangible benefits, ignoring all others including foreign investors, business and industry, the services, exports, real estate and even agriculture, is the strange thing.

How does Modi 2.0 expect to pay for its welfarism and baton twirling on the international stage? India has even become a “donor nation”.

The FIIs have already pulled out a couple of billion in less than a month. FDI has stopped in its tracks. The foreign exchange reserves have dipped by a like sum. The stock market, the first to give the thumbs down to Modi 2.0, has plunged continuously since July 5^th.  

That the poor have done the BJP proud, is understood, but the BJP used rich people’s money to win this election. It took the support of the middle class that cheered Narendra Modi’s honesty, dedication and nationalism.  So how is it legitimate to promote  a vote bank, numerically heavy as they are, at the expense of all the other stakeholders?  

The BJP has developed an arrogance overnight. It is no longer worried about the middle class opinion or vote. It has cunningly decided they have nowhere else to go. Shekhar Gupta quipped the middle classes have become the BJP’s Muslims.

 The Opposition, such as it is, was decimated, not once but twice, and the remainder, particularly in the provinces, is rapidly defecting to the BJP. So future elections to be won are being supplemented already with “inorganic growth” - both at the assembly level and in both houses of parliament.

Modi 1.0 was no great shakes at the economy either, despite the expectations raised in the 2013-14 campaign.  Acche Din was a great, if empty, slogan in 2013, and it remains so in 2019. Except now it is being selectively applied to the denizens of the ruling alliance, and their vote bank.

It is proudly counted in gas connections, toilets, rural roads, echoupals, electricity and healthcare leavened with Mudra loans. The rich, of course, are expected to continue filling the BJP coffers, and not those of the opposition, whether they want to or not.

The NDA has still got a lot of sympathy for its line that it needs more time to implement its grand vision for India. This vision is to take it to the top three economies in the world, with $10 trillion in GDP. But this is apparently designed to beguile the chattering classes.

 What is going on is somewhat different. Not only is the growth plunging, throwing lakhs of people out of their hard to come by jobs, but the BJP is still concentrating on mopping up more votes. In a parliamentary appearance shortly after winning  in 2019 , Narendra Modi extended his other much used slogan Sabka Saath, Sabka Vikaas into Sabka Saath, Sabka Vikaas, Sabka Vishwas.  

That “Sabka” has been reworked to exclude those who are not electorally important. So now, and the  passing of the Triple Talaq bill for the third time in the Lok Sabha is a case in point, the Muslims,  mainly Muslim women,  are next  in the BJP’s sights.

Sabka Viswas is a call sign to India’s Muslims.  Whether it works or not, it is an astute political move. It wards off criticism by firing the first volley for inclusiveness. It blunts the charge of those who call the NDA a purely Hindu nationalist government.  

In the 2019 general election, Modi was helped, in no small measure by a whiff of grapeshot from Balakot. Modi owes Pakistan and its terrorist organizations, as well as the Indian Armed Forces for contributing handsomely to his victory. 

Those factors, and the risk- taking ability of his own decision making. It let him pull off and milk the surgical strike in 2016 using crack ground troops. In 2019 he did it again using precision air strikes. There is nothing like jingoism to make people forget their troubles and project oneself as the great and decisive leader. It won George W Bush and Obama their second terms. So why not Modi?

But that prompt military decision taking ability and nerve, is never, it appears, applied to fostering the growth of the economy. The backfiring of the “Shining India” campaign cost the NDA the government in 2004. The “Suit Boot Sarkar” jibe early in Modi 1.0 has turned Modi into a shade of red ever since.

So Modi sticks to masses of process improvements. And banking on infrastructure, inclusive of a modernization of the railways designed to provide a long term boost to the lives of people.

In the short term, the government may have calculated, spending Rs. 150 lakh crores in five years on infrastructure and the railways will contribute  8% growth per annum. But, Modi is already backing away from the foreign borrowing announced in the 5^th July budget. The scrutiny and accountability that the government may be subjected to seems to be the problem. This, even as the domestic banks are almost maxed out with government debt already. And tax shortfalls from all sources are rumoured to be a third  down.

Any other global headwinds like a conflict involving Iran and the Western powers could further queer the pitch.

But, why is the Modi government 2.0 not promoting overall growth instead of a quixotic backing for hobby horses like electric cars that will not only further damage the automobile sector, down 20% already, but sequester the fuel tax the government collects?  Perhaps it is thinking of lower oil imports.

FMCG and Real Estate too have shown a collapse in consumer demand. But instead of doing anything to revive these sectors, and others, including Services that clocks up more than 50% of the economy, the government has chosen to increase taxes to make up for its shortfall in collections.

But these higher rates of taxes may not see better realizations as people restructure and take evasive action.

There is a sharp slow-down in consumption in rural areas too, suggesting the paucity of spending money.

That the Modi government has been covering up and fudging economic data for at least the last couple of years is alarming. Avoiding a public gaze prior to the elections is understandable, but inaction even after a thumping win is inexplicable.

This sharp economic slowdown is now being highlighted by all quarters but the government is ignoring it. The thinking may well be that there will be a cyclic upturn in the economy in two or three quarters. The IMF continues to give India a 7% GDP growth for this whole year and again for the next, down from an earlier prognosis of 7.3% p.a.

A counter argument is to allow some slippage in the fiscal deficit to say 5%  from the present 3.3% ,and use the proceeds, helped partially by higher  inflation than the present 4%, to get things going again.

Meanwhile, there is nobody to challenge the government.  The BJP is busy harvesting defections and targeting a number of state governments such as Karnataka, West Bengal, Madhya Pradesh and Rajasthan.  

Modi 2.0 can, if push comes to shove, brazen it out, and we have to get used to our tribulations in place of the promised Acche Din.

(1,453 words)

July 26^th, 2019

Gautam Mukherjee

Union Budget: Infrastructure Stays The Ticket To Ride

Union Budget: Infrastructure Stays The Ticket To Ride

The Finance Minister Nirmala Sitharaman wore a shade of auspicious crimson on Budget Morning. And the document she read from was wrapped like a traditional ledger, a Bahi Khataa- in red cloth, tied with golden string, embossed with a gold Ashoka Stambha.

It was a visual jettisoning of ideas, sequences and straightjacket that came  with the erstwhile colonial era briefcase.  The budget itself was not an allocation of funds under different heads with an attempt to balance both sides of the ledger anymore- it was a things-to-do list that the money must be found for. Former FM Jaitley, in his five budget presentations, hadn’t gone into free-form but Sitharaman did.

Nirmala Sitharaman said, in a press conference that followed, that this budget was “A ten year vision with a five year target”.  It was, as in Modi 1.0 where various things were time-lined for 2022, India’s 75^th year as an independent nation, a typical Modi government move. It seeks perhaps, to blur the edges of one term of NDA in office into another via its transformational agenda.

It was a different kind of budget speech too, taking on from the optimism of  the “Blue Sky Behavioral Economics” and Nudge Theory mentioned in the Economic Survey. That cited the voluntary giving up of subsidized cooking gas cylinders by the better-off in Modi 1.0. It also cited a number of economic inspirations from ancient India alongside the Asian universe. This, in a departure from ideas solely emanating from the “East Coast of the United States”.

The budget speech which had its share of wisdom quotes, was artful too- It covered an enormous amount of ground while being audaciously low on specifics and time-lines. But it was steroid-strength high on intent and thematics. It upended the order of emphasis. It made a concerted effort to inspire fervour, belief, Esprit de Coeur.

However, it did not neglect substance in a bewildering kind of way, with hundreds of modernist tweaks to how this country must act and see itself going forward with little allocations in its wake. The elephant in the room was how will India pay for it all without runaway inflation or fiscal hara-kiri. But if most things are multiple year endeavours, then the slicing and dicing in a given year’s balance sheet usually takes care of the fiscal prudence.

The stock market, made up of prosaic money men, ducked its head, wondering why it still had to pay irksome capital gains tax when we were on the $ 5 trillion bus.

There were some moves, not very substantial, to recapitalize the banks and bail out the NBFC sector. Housing Finance, like a naughty boy, will now be supervised by the RBI. Divestment will continue to be something the government wants to do. The Railways will get massive investment indicated as an ask, via off-budget methods, esoterics like PPP, and so forth.

For a government big on national security, there was practically no mention of defense, except to say that defense equipment imports will be free of customs duty. This implies that all purchases will be conducted off budget. Allocations in the fine print are to run the administrative expenses of the armed forces.

The presentation was thick with dozens of procedural improvements towards promoting greater efficiency and ease of usage, such as interchanging Aadhar with PAN and “faceless Income Tax scrutiny”.

However, there were a few announcements that stand out. And these, for their potential to be transformational. The government will permit 100% foreign investment in the leasing and financing of aircraft – a virgin area domestically. It will also do so in animation, media, and in insurance intermediaries. It will further encourage FDI into real estate, aviation and single brand retail, setting up huge manufacturing for all manner of relocated things from China.  It will also encourage the setting up of massive operations and maintenance infrastructure. The domestic finance market does not have the heft to invest in most of these new thrust areas.

 The current maze of Labour Laws, and even the archaic rental laws are going to be reformed.

In a possible recognition of high domestic government debt of  $2 trillion against a present GDP of $2.7 trillion, the Finance Minister pointed towards India’s very low external borrowing. This, even as the fiscal deficit target was still being capped at 3.3%.

She said India’s hard currency external borrowing was some 5% of the total, and amongst the lowest in the world. Then she announced the government’s intent to borrow more in foreign currency, to the delight of the domestic debt and bond markets.  

This will be good, when combined with foreign collaboration in infrastructure development. If the announced Rs. 100 lakh crore for infrastructure in the next five years comes, it could flow substantially from external sources. This, of course, is also the glide path to the $ 5 trillion economy in one go, even if all else flatters to deceive.

The budget speech showed consistent concern for improving the lot of the  rural and urban poor. This, mostly with missions and infrastructure development, rather than the doles favoured by the UPA. The latest mission, launched even before the budget, after electricity, cooking gas, and toilets, in Modi 1.0, is piped water for all.

The emphasis on housing for all, but not real estate, and indeed all the other last mile provisions as yet incomplete, is carried over into Modi 2.0. There will also be very many more rural roads and other facilities. This approach has gone down well with the voting public of all castes and creeds, as the massive winning mandate has shown, and it makes great political sense to continue with it.

The smaller corporate entity, up to a turnover of Rs. 400 crores per annum, is now included in a tax rate capped at 25%. This was hinted at in the interim budget, when only those under Rs.250 crores were qualified, and has been delivered now. That it thereby brings over 99% of companies within its ambit is the remarkable thing. There are just 0.7% of companies in India which are bigger than this.

Perhaps now, many of the smallcaps and midcaps will march on into the big league and make space for the new entrants and start-ups. This budget dwelt on incentives and motivations for the start-up space. It is clearly seen as a priority area though Indians living in India are not the most innovative of people.

There are no changes in direct tax rates from those that were announced in the interim budget. They exempt over 80% of income tax payers, who earn no more than Rs. 5 lakhs per annum. The broad-based fuel using public has  been served with a single rupee in additional excise duty per litre. And this, predictably, excited a great deal of comment.

This budget also introduced another couple of taxes on the rich, but mercifully stayed away from the reintroduction of unworkable Estate Duties. A higher surcharge on income tax of 3% up to 7% will apply to those who earn taxable income of Rs. 2 crores per annum or above, and there will be a 2% TDS on cash withdrawals of over Rs. 1 crore p.a. from a single bank account.

There was a great deal on electric vehicles - incentives for manufacturing them with an ambition to become a global hub. There will be subsidies for buying them, and a big push to the setting up of Electric Charging Stations,  the manufacture of Lithium Ion batteries and Solar Photovoltaic Cells  and other “green” equipment. If the idea catches on with the automotive sector it could do well, even though nascent electric vehicle technology, high cost and no charging infrastructure as yet, are daunting.

The Budget, like the Economic Survey before it, glossed over all the problem areas. It made no mention whatsoever of a severe economic slowdown and shortfall in targeted revenue collections. Instead, it talked up a rise of 78% in direct tax collections over the last two years.

Sitharaman elaborated that the economy had grown by $1 trillion between 2014 and 2019. And that it would reach $ 3 trillion in the course of this financial year. India is already the 5^th biggest economy in the world at $2.7 trillion, and 3^rd , if its status is calculated in PPP terms. So, $5 trillion, here we come, and never mind the impediments in between!

 (1,401 words)

For: The Sunday Guardian

July 5^th, 2019

Gautam Mukherjee