WHAT WENT WRONG WITH INDIA’S GROWTH STORY

Some 4-5 years back when Lehman brothers fallen, the world was gripped by fear, and the fear was not wrong, but in the middle of the global crisis there were rescuers which ensured that crisis would not be deepened and not be as painful as it was during great depression, these rescuers were surely the emerging economies including  India. It not only shown the strength but also promised that the pillars of its economy are strong enough to withstand any global crisis. Take the odd; the government of the day was supported by the leftists, known for their strong anti reform agenda, India was darling of global financial analysts, magazine, rating agencies, it is substantiated by the fact that India received the largest amount of FDI/FII inflow in crisis period when most of the countries were desperately witnessing outflow that left these economies bleeding.

Now when crisis is partially gone, lefts have left the government, the situation is diametrically opposite than what was thought, the credit rating agencies, like S&P, moodies have downgraded India’s rating to negative grade, currency is the worst performer, growth is losing its steam, FDI/ FII has fallen, and one of the most influential financial columnists Ruchir Sharma has revealed in his book BREAKOUT NATIONS that it was not inherent strength of the engine rather it was high tide that led to sporadic rise of India’s economic boat. So what went wrong in these years, people suggests mainly corruption, lack of political will and global factors.

I sincerely doubt that any of the above was absent in those years, I mean, corruption is not a new discovery and political bargain is the order of the day in the era of coalition politics, probably the responsible factors lies somewhere else.

To my mind, the way corruption is handled is the key issue, US corporate has bigger corruption cases than India’s own, but the key difference is the way they are handled at both of the places, west media has always been very critical of emerging nations growth story so little cooling off of the growth is projected as emerging nations failing story, and no doubt Indian media started aping it, we must understand that fundamentals like saving , investment rates, market capitalisation etc are still strong, there is bit of truth in the high tide story but the engine has gotten strong too.

The world economy is facing slow down, the effects of crisis on emerging economies come with a lag, and this is probably the most important reason. The supply of goods and services could not kept pace with the huge welfare expenditure across the sectors that created nflation conditions, in this scenario when rate of interest was increased to tap the inflation, it increased the cost of finances and production thus inflation became spiral, once inflation became secular, it created conditions for rupee fall and had its toll on growth rate.

The real point is that this phenomenon is purely economic, we need to form sound economic policies rather than becoming directionless, it is true that low corruption economy has better chances to grow, but in our cases, the urgency is little different, of course we should keep in mind that  long term objectives should be of reducing corruption.

The west Bengal boomerang

When mamata ji secured landslide victory in west Bengal, everyone was euphoric including me, she replaced left rule government with a promise of a great dawn, but now it seems to be fading up gradually, she probably misjudged the people mandate, clearly, it was more because of people being fed up with the left rule than sheer charisma of didi, she miscalculates that mandate has been given to do whatever she wishes to do and people will be behind her to justify her action. First it was disastrous decision to replace visionary rail minister, over an issue which she acted of not being aware until budget was made public, and now defending the arrest of a professor from Jadavpur University, over making a cartoon of her, the professor was thrashed, beaten up and forced to resign.

Even in the days of emergency Indira Gandhi never got any one arrested just because she was shown in poor lights, this is even worse than those days. Freedom of expression includes freedom to resent, until it is strictly personal affair, and by no standard this caricature was vulgar or personal, her supporters are explaining that those were real picture and not cartoon. This is the most laughable defence, as cartoons are always made to look real pictures funny. Just before this incident she ordered rewriting of history in school books, so that left ideology could be wiped off from the schools. It seems that she has become a guardian of everything that will take place in west Bengal.

The real issue is not about the cartoon or the books but about the ways she intends to carry out the governance, the real problems of Bengal are as stark as they were before her, but she chose to get engaged in those issues which suggest sheer vendetta or her own image building. At the time of left rule Bengal was stuck into the inertia, everything was compromised in the name of socialism, industry registered negative growth, number of chronically poor went up, and now when people thought they can see a new light mamta ji is engaged into everything other than real issues.

The most unfortunate event for the public figure happens to be when he or she stop listening to his/her own criticism because then they are surrounded by sycophants and false supporters who completely prevent any undesirable information and thing to reach to their leaders, and from here, these figures start drifting away from the reality, and that, ultimately becomes the cause of great collapse. Check the history of collapse of any figure and you will find almost  the same answer, I am afraid mamta ji is on the same boat.

Derailing the rail

After so many years, we saw a real visionary and pragmatic rail minister, who never intended to use the railway as a vehicle for corridors of power, this man, Dinesh trivedi, did his MBA from Texas, and make no mistake, he got it financed from a loan of rs 20000 long back in 70s,. He was more than perfect for the job, as he also worked with detex as a logistic expert. But these things, i am sure, were never in mind, when he was appointed for the job by mamta banerjee, and was never in mind when he is about to be sacked. He was simply appointed because somebody had to be there, and that too from the TMC, mamta banerjee always road on railway to get her votes, and after becoming chief minister, she never wanted to lose this beautiful wagon of popularity, so it was given to mr.trivedi.

Nobody will deny from the fact that railway is in dire need of reform, take the safety issue, although at 0.55 accident per million km, it is low, but huge population make the number of affected people quite large, the modernisation is hanging from time immemorial, the platforms are one of the filthiest place you go around, the wagons are hopeless, only one third of lines are electrified, border railway is simply inadequate, on top of that in every budget you have more trains on same track. For all these things you need money.

The central issue over which, the minister is likely to resign is the passenger fare, which has been increased marginally, that too keeping in mind class differences, is a non issue to my mind. The passenger fares are unrealistically low, and probably one of the lowest in the world. Take the example of Delhi metro, the fare I bet is , if not the highest, is competitive to other modes of transport like bus. All kind of people ride on it, rich and  poor, office goer and student, and they hardly ever complain about it, the gist is that today people are more concerned about the amenities the get than the fare, railway has not increased its fare from last eight years, taking the average inflation and cost of other inputs that have gone up average 4 to 5% in these eight years, the fare must have gone up by 10% by now, to say the least, even the cost of a cup of tea has gone up from rs 2 to rs 4 in these eight years, the simple point is that bottom income has  increased, so there was no rational behind holding the prices so low for so long. In this context this man proposed one of the finest railway budget in recent years, proposing separate authority for stations, for fare determination etc.

There is another angle of this problem as well, although railway has never been seen in the context of competition with the other modes of transport but one of the biggest reasons behind low and ridiculous development of other modes of transportation is that of low fare charged by railways and throwing other modes of transportation simply out of  competition, this further has aggravated the problem of public transport.

If people pay little higher, they seek little higher services and thus an informal pressure to reform the services on the system builds up and that, to my mind is the precursor of real reform.

They way this Nobel attempt was undertaken cornering the political expediency is really appreciable, but the way it is about to be sabotaged just show the sheer political opportunism and it is without doubt a real danger for the bigger agenda of reform.

corporate curruption in inda and US

                              

This blog is especially written in response to the article by josh Goodman in wall street journal, his article on ‘what India can learn from the US battle on bribery’ is an excellent piece, but certain refinement is surely needed in Indian context.

He points out quite rightly that it was not only the enactment of Foreign corrupt practices act 1977 in US that reduced corruption, but other factors that accelerated the process were exposing high profile cases and penalising them like Daimler, Siemens (jointly paid penalty of $ 2 billion) which could became model for other corporate to deter them from being involved in the corrupt practices, creating stakeholders in non corrupt practices and political will. There is no doubt that these measures are very important, but what is more important in India, looking at the recent spate of scandals, is little different.

The one common thread that runs across all the major scandals is the lack of automated transparency, which simply means transparency of a kind which is deeply embedded in the process itself. Let me explain it, technically the most democratic form of corporate are joint stock listed companies, the value of a company depends upon the information it reveals in the market, shares prices move as per the prospects of profit, not only that, people are wise enough to gauge the impact of even a political event on the prospects of a company, so movement of resources are ideal, but that never happens in any country, in any company. Why ? because information  are either suppressed are calculated wrong information is circulated to misdirected the choices of investors, this is exactly what happened in Satyam, Worldcom, Xerox, Enron cases where wrong accounting data were provided to the market.

In corruption cases like 2G, antrix- devas deal the major problem was again the same where, contracts or allotment of scarce resources were made through a clandestine deal, only came in the public notice when damage was already done.

So what is needed most, is the reform which embed the transparency automatically, every information that is provided by the corporate must be verified, corporate governance and especially, corporate accounting and auditing need to be strengthened , today ICAI hardly makes any news  about auditing and accounting in Indian corporate except conducting CA and CS exams, this is the high time when 2^nd generation reform is adopted,  listing of public corporate  is achieved, SEBI the market regulator is given more teeth in corporate governance, the overlapping issues between SBI,RBI, ministry of corporate affairs need to be resolved. The more the economy will be open, liberalised and market friendly, the more open information in the market will prevail. The right to information act with some exception need to be applied on the corporate as well.

India is in the nascent stage of corporate governance whose problem of corruption is anatomically different from the corruption prevailed in the US corporates which has a fairly strong corporate culture, the company like galleon and person like Rajat gupta are caught and charged, while in india, we have not heard any galleon or rajat, gupta barring few mysterious arrests like harshad Mehta and ketan parikh.

The political will follows the trend, not the vice versa, political will need to be made a process not an individual effort, to make it a process , it is important to have a strong and vibrant corporate governance, where every possible information is revealed. The major challenge is to sustain the political will not its sporadic application.( the best example is the Nitish government in bihar, who have made development as an issue, so no matter who follows him , he will always be judged on developmental parameters, so successor will be process bound to undertake development.)

Flying woes- bleeding aviation sector

Some 5-6 years back the number of air passenger in India was roughly 5 millions, in 2011 the numbers of passengers were 51 millions, the demand for air travel is growing by roughly 20% and will continue to grow in coming decade, but still baring indigo every other domestic airline is running in loss. The story of Indian airlines and kingfisher is well known to everyone.
So what holds back Indian aviation from making profit?
Well there are number of reasons, first, world over the fuel cost(including taxes) is around 20 to 25% of operating cost, but in India it is around 50%, secondly, there has been steep reduction in airfare right from 2000, while the fuel prices has increased from that time, thirdly, the ground cost,(cost of airport and handling charges) are on rise, fourthly, major and profitable routes are intense competitive and price based competition is continues, fifthly, the funding cost for aviation sector is one of the highest in india.
Probably the most important need of the time is to open the aviation sector, because, the investment has to come from there, the techonology needs to come from the best international players. Swiss airlines was bleeding when it was saved by luftanza, similarily virgin Atlantic was saved by the investment made by Singapore airlines. Years back Singapore airlines proposed to invest in Indian airlines but the proposal was sidelined due to sectoral investment caps. FDI in domestic aviation sector would generate less controversy than what has been erupted by FDI in retail. Its right time to go for iot.

RETAILING THE FEAR AND HOPE

THE much awaited (perceived by the policy makers) big ticket reform, that is FDI in retail has been allowed, well first on the timing of it, there are two views first that UPA was genuinely frustrated over the long delay in second generation reform process, it could not waited more so it was the right time to sail it through, when the country is gripped by  all round corruption issues. Second view says that UPA needed a fresh approval at least by any class, a kind of legitimacy to continue in the office(read corporate class here) so it went for the decision.

 Well the issue has came up at the time when UPA is already at back foot and quite expectedly this issue has been highly politicised, there are some genuine threats and opportunities both, but for good reasons it is improbable that this reform would be a catastrophe for the farm sector and will push our farmers at the level of destitution.                                                          The mother arguments of all type of stakeholders is that it will lead to massive reallocation , in which, supporters says middleman will be eliminated farmers will directly be accessed by the corporate, back end infrastructure will be created, inflation will go down, disparity between farm and manufacturing will reduce etc while with the same forcible logic its opponents argue that it will lead to ruining of mom and pop shops, elimination of small and marginal farmers, massive rural unemployment etc.                                                                     Let's get the fact first, retailing contributes 22 percent of GDP, it earns the bread and butter for not less than 2 million household as on date, the size of retailing business is roughly 350 billion $ annually and expected to grow by 1o to 15 percent in coming decade, moreover AT Carney has ranked India as the most lucrative market third year in a row. Organised retail is just 5 to 8 percent of this market.                                             

 Now even if FDI is allowed, it will go in the highly urban areas, where not only the presence of mom and pop shops are less but also these areas already have presence of organised retailers like big bazaar, so real completion is between Indian and foreign retailers, which is good. Small retailers have their own USPs like any time offering, selling on credit, serving the individualistic demand for consumers, personal relationship etc. Apart from it there are spread in the length and breadth of 6 lakh villages’ there sheer presence can never be challenged by any Wal-Mart, because Wal-Mart is not going to serve the villages.                                                            

As far as back end is concerned, farmers are already in not so good situation, they will definitely be at better side, yes they have small farms but strategy can always be worked out for area and size specific products. New jobs will be created in back end operations. The physical infrastructure creation which will be useful for farmers is doubtful but intangible structure most likely to come.                                             

 Having said that, it cannot be forgotten that jobs will definitely be lost, major loss will be seen in urban small retailing. We are neither Canada nor Malaysia where good and bad example exist for multi brand retailing. I always believe that India is a strange country, what work as poison for others work as elixirs for this land such is the resilience and adaptability of this land.  Who can forget the forced opening of Indian market back in 1991 and the wonder that happened after!                                   

  Finally, the decision has to be finally taken by states, because they will grant the permission for opening of such stores, so there is no need to panic as the new circumstances appear new lessons are learnt new strategies are drawn and this is how development takes place because we like it or not we have to face this, sooner or later, and like many things in life, in this particular case, sooner is better.                                    

ARABIAN CRISIS AND LESSONS THEREOFF

. As the rulers in Egypt and Tunisia chose to hand over power to their own people, Libya still fighting on. the crisis of the Arab world has enveloped entire world, not necessarily for the same reason and in the same order, but to different degree and in different diamension. In one of his remarkable books " Future of democracy" Fareed jakaria had very strongly argued that in any case the Arab world was living at the margin of political spectrum and it was just a matter of time before they explod for larger political change the reason put forward by him were mainly that once a country crosses the certain income limit (around 6000 dollers per capita) political changes are more likely than others since it develops powerful orientation for middle class and business class for further reforms in political field, In arab world till now situation have been little different here governments were so rich that they didn't need to tax people to run the government and in return they never gave much desired popular liberty to people. Meanwhile, one of the most dreaded face of Arab dictatorship colonal Gaddafi was killed by the mob, which was an unprecedented event in the political history of the Arab region. It has created various new implications for the world politics in general and for arab politics in perticular. For the world politics massage is loud and clear, firstly, no country can enjoy political immunity no matter how rich it is.seconly, political vaccuum, immidiately after lost in the faith by people in governmental agency needs to be filled by an international arrangment otherwise it will produce political chaos, thirdly, pampering of Arab world by the western power which is probably the biggest reason why political reform in Arab world is obstructed, need to be stoped. Fourthly, political conspiracy at international level, polarism should be ended so that international community could not remain only the mute spectetor in the event of international crisis