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Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

Thursday, November 7, 2013


Bentley at the Red Light: Old Poverty, New Wealth

For the first time, the electorate faces a clear ideological choice. The Congress is the architect of liberalisation that unleashed the animal spirits of competition and innovation in the economy. The ensuing economic boom peaked in 2004; in the following decade, the economy grew at an average of 8% a year. This is evident as many sectors, including telecom, automobiles, pharmaceuticals and IT, became globally competitive.

Somewhere down the line, this growth story came up against some cruel facts: a large population afflicted by poverty and illiteracy, high malnutrition and abysmal public health. In stark contrast, world-class private schools, private hospitals, private estates, private planes, private roads and private banks blossomed.
There was always disparity, but never in your face. The pathetic picture of a car worth over a crore, waiting at a red light, besieged by begging children, is a new phenomenon. There have always been beggars, never Bentleys and Jaguars. Over the years, the rich became richer. This was not the outcome that Manmohan Singh, as finance minister, envisioned in 1991.

A year later, the BJP changed the debate with its sacking of the Babri Masjid. Suddenly, the debate was about Hindutva and the Ram temple. In the tumultuous decade that followed, the opened economy was hijacked by crony capitalists and middlemen. Mistaking this to be genuine reforms, the NDA government launched a highvoltage “India Shining” campaign. They even called an early election, hoping to cash in. In the event, a Congress-led coalition came to power in 2004 on an inclusive growth manifesto and was reelected in 2009.

Now, Narendra Modi, the new RSS mascot, has turned the BJP around to make it a US-style Republican party, stalling reforms in the legislature, promoting laissez faire and protectionist policies in the same breath, railing against government welfare spending, espousing a hardline but whimsical foreign policy. He speaks to an urban, upper-middle class audience and believes there are enough votes there to see him through.
Modi and his supporters believe he can form a government in 2014. It’s hard to believe, though, that his agenda of gated communities, luxury cars and conspicuous consumption will garner votes from the urban and rural poor, Dalits, tribals and Muslims who form the bulk of the young population. Meanwhile, the Congress has again arrayed itself in support of the excluded. More than his mother, Sonia Gandhi, who nudged the government into adopting a welfare-based legislative agenda, Rahul Gandhi is vocal about the skewed priorities.

The Indian business elite is up in arms against the Congress welfare agenda. They say India can’t afford it; they demand business-friendly policies that encourage growth, never mind the disparity. Senior ministers in the government are at pains to point out an inclusive agenda is not anti-growth and point to the national manufacturing policy that aims, in the next 10 years, to boost the share of manufacturing to 25% from 15% and, in the process, to create 100 million jobs.

In the face of heightened disparity, no political party can embrace trickledown economics and expect to form a government. Hence, the Congress lays emphasis on welfare along with its track record of growth. Modi’s noisy campaign, on the other hand, is based on disputable claims about growth and governance; the underlying message, however, is an unmistakable one of Hindu chauvinism.

Modi hopes to ascend on many contradictory platforms: authoritarian capitalism, muscular nationalism as a subliminal plank against minorities. In voting the Congress back in 2004 and again in 2009, the electorate turned its back on the BJP’s growth hype. The question now is whether voters will buy Modi’s high-voltage pitch. The idea behind the multilayered campaign is to fudge his track record that is sullied by allegations of his involvement in the 2002 Gujarat riots.

These charges have proved difficult to shake. Modi’s controversial role in the riots also attracted global concern. Major western countries instituted a diplomatic boycott; the US revoked his travel visa and is yet to restore it. Will the US presidential-style campaign help overcome the stain of 2002?

This article appeared in The Economic Times, November 5, 2013.

Friday, July 6, 2012

‘I’ve maintained high standard of integrity in my conduct’

PM Manmohan Singh tells HT that never before have so many steps been taken in such a short time to bring in transparency. Here’s the full text of his written replies to an HT questionnaire.

On economy: We will bring clarity on all tax matters. We want the world to know that India treats everyone fairly and reasonably and there will be no arbitrariness in tax matters.
On charges of corruption: ...Bills such as Whistleblowers Bill, Lokpal Bill, Judicial Accountability Bill etc, which if taken in totality, will raise the standards of integrity at all levels of government.

On his legacy: I have tried sincerely throughout my life to make India a better place to live and work in ...We have an unfinished agenda. I will leave it to history to judge whether I was successful.
Q1. How do you see the economic situation today and why have we come to this pass?

We are certainly passing through challenging times economically. This did not happen overnight. A lot of it was due to developments in the global economy. The developments in the Eurozone have been a major dampener of global economic sentiment, till the Eurozone leaders hammered out an agreement a few days ago. Europe is the most important destination for our exports and any turbulence there will certainly affect sentiment here. We then had the oil price rise. For a country which imports nearly 80% of its oil, this badly hurt our trade balance. In fact, a major portion of our trade deficit is accounted for by oil imports. There were domestic factors as well.

Q2. What are the top five challenges to the economy in the year ahead?

The India Growth Story is intact. We will continue to work, as we have been doing for 8 years, to keep the story going. Measures which I intend to focus on, in the short run, are:
  • Bring complete clarity on all tax matters. We want the world to know that India treats everyone fairly and reasonably and there will be no arbitrariness in tax matters.
  • Control the fiscal deficit through a series of measures which my officials are working on and on which we will build consensus in the government.
  • Revive the Mutual Fund and Insurance industries which have seen a downturn. Absence of investment avenues has pushed Indian savings into gold. We need to open new doors so that savings can be recycled into productive investments that create jobs and growth, not into gold.
  • Clear major investments in the pipeline awaiting FIPB approval. Investors should feel that we mean business. We will also work towards improving the response time of government to business proposals, cut down infructous procedures and make India a more business friendly place.
  • Most importantly, we have given a major push to infrastructure, particularly through PPP. A lot of investment avenues are opening up in Railways, roads, ports and civil aviation. The doors are open for the world to strengthen our hands and contribute to these vital sectors which will give a further push to the economy.
Q3. How do you see coming elections in the states and the Centre affecting policies? How do you guard against populist measures, given the size of the deficit?

I am largely satisfied about the way we have progressed over the last 20 years. The fact that governments have changed many times in between but economic policies have continued means that the direction that has been set is seen to be the correct one by all parties. That is a source of satisfaction also.

However, there are a few issues that come quickly to mind when it comes to what else needs to happen. Firstly, we have yet to settle down to a stable institutional framework to manage an open economy. Our institutions are still evolving and it will take time till we see mature institutions in all sectors as we see them in advanced economies.

Secondly, the logic of an open economy and its benefits are still not widely understood among the general public. Public discourse still sees markets as anti-public welfare. The instinctive reactions of many, both in the political class and in the public at large, is to revert to a state controlled system. There is no realisation that a reversal to an earlier era is neither possible nor desirable. Even a neighbour like China has understood the logic of an open economy and is developing the institutional framework which is required for this. It is necessary that we change the discourse from a critique of an open economy to a critique of what is needed to make an open economy work better for the welfare of the people.

Lastly, there is the issue of distribution. We have lifted millions out of poverty. But, I worry that the fruits of an open economy will be increasingly captured by fewer people. I worry that a large segment of our population will be left out of the benefits of economic growth. We need to correct that fast.

Q4. Foreign investors have been rattled by events such as the tax row with Vodafone. How do you intend to set their minds at rest?

The investor community had concerns on some tax matters. The finance ministry, over the last three months, has been issuing clarifications and working with the investor community to bring greater clarity on the matter. However, there has been a slowing down of capital flows which normally would have covered the current account deficit.

That does not mean things have turned very bad. Coca Cola has announced to invest $ 5 bn in India just a few days ago. IKEA plans to invest a billion dollars. The pessimism in the media and the markets is far more than reality. Consumer spend is holding up and this has not been affected by interest rates. The Chairman of GE captured the picture correctly when he said "the mood in the market is worse than the mood on the ground". I agree with that.

Q5. There is also a perception of drift, of policy paralysis. You have used the term “coalition compulsions” is this the main factor? How do you dispel the impression of drift? Do you intend to communicate more often with the nation?

I think it is a matter of perception. We worked under far greater constraints under UPA 1. However, there were a lot of things which had been done under the previous government which we had to undo. We had to bring a healing touch to the nation, make minorities feel secure and included, and give emphasis to the needs of the common man who had moved to the background in the Shining India of the NDA rule.

The biggest achievements of UPA 1 were the healing touch which we managed to bring in and the focus on inclusive growth. We did this with widespread support across the spectrum of parties supporting us.

But difficulties existed then as they do now. Parties are entitled to their differences then and now. There were differences on the US Nuclear deal and there are going to be some differences now also. I do not think that the political landscape is radically different now as compared to 3 years ago. What has changed is public expectation. Now that the immediate problems caused by the NDA government have receded into the background, other issues are coming to the fore. This is but natural. That is the way of democracy.

As for speed, look at the way we responded to the 2008 crisis. We rolled out a stimulus package which ensured that we came out of its effects rapidly. We are passing through a similarly challenging situation and I am confident, we will roll out measures to restore economic growth once again.

Q6. In your role as finance minister what do you see as the roadmap for key pending reforms such as pensions, insurance and banking reform, the goods and services tax and the direct taxes code?

Firstly, legislation is not the bottleneck to economic growth. Barring an issue here and there, most economic steps that need to be taken do not need legislative action.

More important is that we need political consensus in the government on some policies. These are genuine differences in opinion. So, in a democracy, consensus building is the key to long term economic success and we are steadily moving ahead in doing that.

Q7. Can we expect some of the young ministers of state becoming cabinet ministers soon?

You have to wait for a while for that question to be answered.

Q8. When will you go to Pakistan? What are the ideal circumstances that would make such a visit possible?

I am looking forward to visiting Pakistan. No dates have been finalised for the visit. As you know there have to be suitable outcomes for such a visit.

Q9. How do you react to charges of corruption during your Prime Ministership?

Never before in the history of India have so many steps been taken in such a short time to bring in transparency into the functioning government, make government accountable to the people for its actions and bring in measures to control corruption. The Right to Information is a landmark Act for which the Congress Party and its President will be remembered for generations. In fact, this single act has done far more to bring down corruption and bring in accountability than any other measure. It is the information flowing out as a result of this Act which is bringing a lot of corruption to light which would otherwise have been hidden.

We have introduced a Public Procurement Bill which brings in far greater transparency into government procurement and severe deterrents for wrongdoing. This would remove a major source of corruption.

A number of other bills are there such as the Whistleblowers Bill, the Lokpal Bill, the Judicial Accountability Bill, etc. which if taken in totality, will raise the standards of integrity at all levels of government.

Coming to the personal criticism, not only have I maintained a high standard of integrity in my conduct, I have endeavoured to raise the levels in the system as well. All these measures are a reflection of our party’s will to tackle corruption. As for criticism by media, that is their job and I compliment them for doing it effectively.

My only request to them is to exercise some balance and retain a sense of proportion in their coverage of issues. Just as the pessimism over the economy is more in the markets and less on the ground, even in the case of corruption, I do not think there has been any explosion in corruption under my watch.

Q10. What is that one thing that you would like to be remembered for?

I have tried sincerely throughout my life to make India a better place to live, work and lead a fulfiling life. In some ways, I contributed to this as a Finance Minister. As Prime Minister, I have had a larger remit. I have worked on the same lines but on a larger platform. We have tried to build a peaceful, harmonious, secure, friendly, prosperous India where every citizen can aspire for the best in life. We have an unfinished agenda. I will leave it to history to judge whether I was successful.

This Interview appeared in Hindustan Times on July 08, 2012.
I've maintained high standard of integrity in my conduct'

Monday, March 7, 2011

A Thoughtful Budget

Media Don’t Get It

Except for The Wall Street Journal and the very thoughtful program anchored by Prannoy Roy on NDTV, the budget got short shrift everywhere else in the media. The general assessment was it was a mediocre or bad budget. Which is as far from the truth as Alaska is from India.

Hours on television and pages in the newspapers were full of meaningless analyses. Some said there were no major reform announcements; others moaned about the tax provisions. One particularly egregious businesswallah, member of the tribe that shows up on television each February 28, ranted about the tax on “centrally air conditioned hospitals.”

The growth brigade was out in full force lamenting this, that and the other. The Left and jholewallahs also dismissed he budget as a continuation of the neoliberlal conspiracy to sell India to the West. The BJP, its credibility waning by the minute, made its usual noise.

The media, “civil” society groups, the Left and the Hindu nationalists couldn’t have got it more wrong. The media are ill-informed and incompetent. The activists are naysayers; the Left works on a discredited economics model and the BJP, aka the Hindu nationalists, are clueless.

Consider the following ten points taken straight out of the finance minister’s speech:

1. Food prices are high despite improved availability. The finance minister said this was because of shortcomings in the marketing and distribution system. Held in thrall by the government and random retailers and middlemen the marketing and distribution system is a problem. So the signal is they will open up to organized retail marketing.

2. Inflation management calls for a focus on agriculture. The need is to improve productivity. The finance minister’s message was to improve the quality of inputs including mechanization, nutrient-based fertilizers and biotech applications.

3. Also addressed in the budget was the need to remove bottlenecks in value-added farming, including horticulture, dairy, poultry and meat. This is of a piece with the findings of the S S Johl committee that was formed in the 1980s and recommended that at least 20 percent of farm land be given over to value-added crops.

4. The finance minister announced the formation of a public debt management agency. The idea is to depoliticize debt and curb populist spending.

5. Disinvestment of public sector units is a huge problem. Calling it the need to increase people’s ownership of these government owned companies, the minister said the government looked to raising 40,000 crore from the sale of their shares in the stock market.

6. Amendment of the banking regulation act is a major announcement. In its purview, private sector banks will be allowed to open more branches. As such, the so-called aam aadmi will not have to battle for banking services that are a problem in the nationalized banks.

7. Also announced was a plan to modernize the stamp and registration administration and the setting up of a central electronic registry for immovable properties. It is a strike in the heart of darkness because real estate is the major source of black money.

8. This is perhaps most important. The government will now do direct cash transfers to people below the poverty line. It’s a brilliant move to stop leakages from welfare schemes.

9. On the taxes front, the finance minister has left most levies untouched but has given a break to the bulk of taxpayers by increasing the exclusion amounts.

These are a few, and there are many more, of the budget’s highlights. It is abundantly clear the government knows what it’s doing.

The budget is beyond is beyond partisan politics and is a sophisticated response to the globalization of India’s economy.

It is clear that this government understands the issues and the problems. It is, as the finance minister said, a transition to a more transparent and result based economic management system.

I think it is a great budget for an increasingly sophisticated economy.

What do you think? Write me.

Copyright Rajiv Desai 2011

Tuesday, March 11, 2008

Res Gestae

Res Gestae is based on the belief that because certain statements are made naturally, spontaneously and without deliberation during the course of an event, they leave little room for misunderstanding/misinterpretation upon hearing by someone else.