Economy’s future is Ram bharose

By Swapan Dasgupta

Like most things Indians or, rather, Hindu, there is a great deal of ritualism that accompanies the annual Budget exercise. For Finance Minister P.Chidambaram, a seasoned hand in presenting Budgets, the predictable part of the choreography may lie in the mandatory recitation of a verse from Thiruvalluvar; for the writers of the Economic Survey it may consist of repeating last year’s assurance that darkness is inevitably accompanied by sunshine; and for those who are dubbed corporate ‘honchos’ it may lie in describing every Budget as ‘responsible’, ‘innovative’, or even ‘path-breaking’.

However, like the mantras that commits the worshipper to give generously to the Brahmin intermediary between God and the devout, the invocations need not be taken at face value. This is particularly so with a Chidambaram Budget. PC’s reputation for having a low threshold of tolerance and his self-projection as a most superior person have ensured that candid discussions of the Budget are behind closed doors. Apart from the political class who enjoy exceptional protection and a few economists who are mad enough to speak their mind, the predictable response to a PC Budget is about as mellifluous as the King of Basutoland’s tribute to Queen Victoria : “my country is your blanket, and my people the lice upon it.”  

I am naturally not referring to those corporate notables who were sceptical of the claim that the present fiscal deficit is 5.2 per cent of the GDP because some crucial items of expenditure had been conveniently overlooked but, yet, that the Budget was good or even excellent. I am not even contesting the belief that the Indian economy needs to be talked up, as Prime Minister Manmohan Singh tried to do when he feebly suggested that an 8 per cent GDP is not in the realms of a Bollywood fantasy. My simple assertion is that the orchestrated projection of PC as the perennial Superman (recall an India Today cover after the Budget of 1997) who, having ‘fixed’ the deficit, now deserves a role greater than being Finance Minister is a tad overstated.

Nor is this particular reading of the tea leaves too fanciful. According to the political grapevine of Lutyens’ Delhi which tends to get a little overshadowed by the Budget drama, there was a flutter of sorts in North Block last Thursday following an article in The Hindu that painted the Finance Minister as yet another lackey of corporate India—a Congress version of Narendra Modi who was being projected by an alliance of moneybags, ‘communalists’ and Middle India as the great brown hope. That it had been penned by a man whose understanding of the Congress is quite profound added to the consternation. The article was brought to my proverbial attention by a man whose understanding of the Prime Minister is equally deep suggested that something was brewing.

In public, the Congress will heartily endorse the Budget of 2013. They will point to the fact that PC has not curtailed expenditure, particularly on welfare schemes, has reached out to women albeit symbolically, has snarled at the 42,800 of India’s super-rich with a taxable income of over Rs 1 crore and even managed to set new norms for backwardness that could increase the wedge between Nitish Kumar and the BJP. To add to these achievements, he deftly targeted Indian SUV manufacturers, enhanced the tax burden on the futures trades in non-agricultural commodities and added to the woes of the diamond industry. On paper these may look random but there was an underlying hint of punitive action against those who have links to Gujarat and Modi.

In this Budget, the Finance Minister had little elbow room. That he made the most of the limited opportunities will endear him to a section of the Congress that believes the way forward is for Rahul Gandhi to find his own answer to his mother’s choice of Manmohan Singh as Regent. Only the wilfully obtuse can overlook the fact that the Budget has been accompanied by the first tentative demands of a ‘PC for PM’ campaign. At present, the hints of such an approach for the 2014 general election is emanating from a group that can be said to be headquartered in Race Course Road, a clutch of businessmen and industrialists who are based in Karnataka and Tamil Nadu and, as such, have little or no dealings with the alternative superstar in Gujarat. It may even find tacit support from diplomatic missions who are uneasy at the thought of a familiar Establishment being replaced by unknown people.  

Ideally, for these sections, Rahul should have been at the helm of the ‘continuity with change’ strategy. However, for reasons well known, he has proved a disappointment. Hence, the importance being attached to Chidambaram and, equally, the rising opposition to what Congress loyalists see as a recipe for electoral disaster. “Mamnohan Singh joined the Congress to become Finance Minister”, a disaffected Congress MP told me last week, “but Chidambaram left the Congress to become Finance Minister.” The reference was to PC’s defection to the Tamil Maanila Congress in 1996.  

In India, few remember history. For PC, the real test is not whether his DNA is Congress but whether India experiences a bout of sunshine before voting day in 2014. At present, the future of the economy is in a state of Ram bharose. 

Sunday Pioneer, March 3, 2013

No pain, no gain

By Swapan Dasgupta

An Indian Budget has more than its fair share of hype. This has its origins in the bad old days of the ‘socialistic’ economy when every fiscal year brought about a large measure of unpredictability. Mercifully, wild policy shifts and fluctuating rates of taxes are evils that went out of fashion after Manmohan Singh’s landmark Budget of 1991. Yet, old habits die hard and the animated discussions that preceded Finance Minister P. Chidambaram’s 2013 Budget were part of a ritual.

At the same time, there was a discernible difference. In the past few years, Indian self-confidence has taken a huge knock. This had everything to do with what Alan Greenspan in another context had called “irrational exuberance”. After a few years of rapid growth and the welcome end of the shortage economy, India had come to believe that its emergence as an economic superpower was inevitable and, indeed, pre-ordained. The past three years saw this exaggerated self-belief come unstuck. Far from negotiating the challenges of an eight or nine per cent growth, the country has been trying to come to grips with the new reality of GDP growth hovering around 5.3 per cent.

The expectations from the Finance Minister on Thursday were distinctly modest. The pessimists were concerned that the last Budget of the UPA-2 Government before the 2014 general election would see him succumb to the reckless populism that party activists believe can win elections. The optimists, on the other hand, clung to the belief that Chidambaram wasn’t going to do another Pranab Mukherjee act and depress sentiment further. It all boiled down to a simple question: will politics prevail over the hard logic of economics.

The only thing that can be said in favour of the Budget Chidambaram finally presented was that it was greeted with relief. There was no one in either camp that came away from his 100 minute performance with a sense of elation. Equally, there was no total dejection.

The populists who had expected a massive allotment for the proposed Food Security Act were disappointed that he kept aside a mere Rs 10,000 crore—an indication that the legislation will probably be enacted in the final months of the Government. There was disappointment too that the monetary allotment to the other flagship programme—MNREGA—was actually decreased—an admission, perhaps, that this great act of rural empowerment was yielding diminishing returns.

Among the ‘aam aadmi’ constituency, those with a head for figures were also quick to notice that the claimed 46 per cent increase in the Rural Development Ministry budget, the 22 per cent increase for agriculture and 17 per cent for education were against the Revised Estimates and not the ones presented by Pranab Babu before he departed for Rashtrapati Bhavan. Congress MP Mani Shankar Aiyar calculated that the proposed Rs 655 crore additional funding for the Panchayati Raj ministry translated roughly into an extra Rs 2,000 per panchayat each month!

The extent to which Chidambaram has managed to control expenditure while paying obeisance to symbolic acts such as the Women-only public sector bank and the Rs 1,000 crore fund in memory of the Delhi gang-rape victim, will become clear in the coming days. However, what is sufficiently clear is that if he is going to be faithful to his commitment to keep the fiscal deficit at 4.8 per cent of the GDP, there is absolutely no way in which he can allow populism to run riot.

The credibility of Chidambaram in the eyes of those who make crucial decisions affecting money will depend on his fiscal deficit management. The sub-text of the Budget speech was that the deficit had been contained at 5.2 per cent because of the past few months had seen the Finance Ministry tighten the purse strings since August last year when it seemed that India would be faced with a ratings downgrade. Many economists believe that the claimed 5.2 per cent figure is window dressing and that the actual fiscal deficit is much higher. This implies that Chidambaram has really very little scope for manoeuvre before the election. If the investing community persists with its overall scepticism and delays new investment in India, rash populism will inevitably invite international disapproval, a ratings downgrade and a plummeting rupee.

Chidambaram had few sops to give to Corporate India, and even his punitive 10 per cent extra surcharge on the 42,800 individuals with a non-agricultural income of over Rs one crore was packaged as a one-off demand. But India Inc was not asking for concessions. It had two basic demands. First, there was the expectation of better macro-economic management. Equally important was the hope that the projects worth Rs 700,000 crore that have been stalled owing to problems with government clearances will finally start to materialise. This doesn’t involve announcements in the Budget—though a mention of the problem may have helped; it calls for political will and better governance.

Unlike the fiscal deficit or even the revenue deficit, the deficit of governance can’t be quantified. Yet, the ability of Chidambaram to mount a successful salvage operation and inject meaning into the Prime Minister’s post-Budget hope that India will soon be on an eight per cent growth trajectory, depends almost entirely on improving the quality of governance.

Unless, of course, the UPA-2 believes that the next election is as good as lost and that the next best thing is to make life hell for whatever follows.

Asian Age, March 1, 2013 

ONE MORE GATE - Popular perceptions troubling for the future of India

By Swapan Dasgupta

Last week, when Arvind Kejriwal first dragged the son-in-law of the Gandhi family into public controversy, there was a facile suggestion that shareholders should ask DLF—the real estate company which is also in the eye of the storm—why it gave a generous unsecured loan to someone who had no business track record worth writing home about. This week, after the anti-corruption crusader-turned politician went public with ‘proof’ of the cronyism that marked the relationship between DLF and the Congress-controlled Government of Haryana, this question is unlikely to be pursued. If the ‘proof’ supplied by Kejriwal is to be believed, the top brass of DLF should instead be complimented on its farsightedness. In enabling Robert Vadra to multiply a Rs 51 lakh investment into a handsome Rs 300 crore in just two years or so, DLF could be said to have gained many times more. It was, by all accounts, a very satisfying, mutually exploitative relationship.

As political scandals go, what was instantly dubbed ‘Damaad Gate’ by excitable members of the twitterati, doesn’t belong to the same league as the 2-G rip-off and Coal Gate. There are no long series of zeros pointing to the notional losses suffered by the treasury. The charge is not short-changing the public exchequer but conferring a most-favoured –entity status on a company with which Vadra was associated. Using a historical analogy, the kerfuffle over Vadra, DLF and the Bhupinder Singh Hooda Government of Haryana belongs to the same league as the Maruti sweetheart deal involving Sanjay Gandhi and the Bansi Lal Government of Haryana which was exposed by the indefatigable CPI(M) MP Jyotirmoy Basu nearly four decades ago—and which many insist were among the factors that triggered the Emergency in 1975.

For the Government, the timing of Kejriwal’s maiden political intervention was singularly inopportune. Having partially succeeded—thanks in no small measure to an extremely obliging media—in diverting public attention from the coal scandal that even left the Prime Minister singed and having talked up the capital markets with the promise of economic reforms and fiscal responsibility, a beleaguered Congress now finds itself battling a fire that has reached its sanctum sanctorum—the private chambers of the Gandhi family. At stake is the very credibility of the family that has provided both the inspiration and the glue to keep India’s largest political party together. Damaad Gate has all the ingredients to become another embarrassing Bofors moment for the Congress. Certainly, the mood of disgust and despondency that has overwhelmed India after more than two years of non-governance has enhanced the likelihood of a wild card such as Kejriwal puncturing the pretensions of the high and mighty.

However, like cricket, politics is also a game of glorious uncertainties and it is impossible to be certain that this latest storm will set in motion an irreversible process of downfall for the fragile UPA-2. Yet, at the same time, Damaad Gate has the potential of unsettling some of the cherished assumptions governing public life.

First, the apparent ease with which DLF allegedly benefitted from its close association with Vadra has added to the prevailing exasperation with the crony capitalism that has prevented a genuine entrepreneurial culture from striking deep roots in India. The alacrity with which the Finance Minister, the Law Minister and the Corporate Affairs Minister jumped into the ring to do battle on behalf of Vadra, and issued him certificates of innocence are reminiscent of caricatured versions of corrupt dictatorships in faraway lands. India has always flaunted its credentials as the world’s largest democracy. The grim realities of the prevailing political culture don’t justify the swagger. From a distance India seems just another rotten egg in the international basket.

In the past, the Government of the day had often conspired to subvert inquiries into alleged corporate wrongdoing. Yet, the suo moto interventions of key Cabinet ministers suggested that there are areas of political life that are considered no-go areas by the Congress and deemed unworthy of both public intrusiveness and the ethics of corporate governance. To outsiders, not least foreign capital that is being so assiduously wooed by the Government, this behaviour has the potential of sending out an unwelcome message: that it is advantageous to view Indian capitalism through the prism of a Third World banana republic where cronyism opens doors and cuts deals.  

Secondly, Damaad Gate raises troubling questions of the quality of Indian democracy. It is by now known in relevant circles that documentary evidence of the cosy DLF-Vadra relationship had been in circulation since February 2011 and, indeed, formed the basis of a very cautious report by a financial daily in March 2011. At that time, there were at least two senior BJP leaders—Arun Jaitley and Yashwant Sinha—who were prepared to raise the issue in Parliament and bring it into the public domain. They were prevented from doing so by the party’s all-important Core Committee on the ground that it would be wrong to target the children of political opponents.

This apparent act of high-mindedness has now recoiled on the party. It is now being alleged, not least by the politicians spawned by the Anna Hazare movement, that the BJP’s silence was proof of the complicity of the entire political class in perpetuating a system based on cronyism and corruption. The charge is not entirely untrue and is likely to generate a political cost. More than anything else, the BJP’s reluctance to hit the holy dynastic cow has ensured that the political benefits of the disgust against unethical practices won’t fully accrue to the principal opposition party.

The consequences of this immoral equivalence are ominous. It is now becoming increasingly apparent that mainstream political parties, including regional parties, are attracting precisely the type of people public life can do without. The bright young idealists who entered the political arena in the past via student activism are now increasingly shying away from the main parties and either opting out of politics altogether or drifting to non-governmental organisations and protest movements like the one headed by Kejriwal. The cumulative loss to Indian democracy is incalculable.

Finally, and equally troubling for the future of India, is the growing impression that the culture of Indian business is by and large rotten and that reposing faith in the private sector as a powerful engine of economic growth carries an unacceptable social cost. There was implicit arrogance in Vadra mocking the anti-corruption zealots as ‘mango people” which hasn’t gone entirely unnoticed. It has reinforced a growing popular conviction—which the 2G and coal allotment scandals helped perpetuate—that ‘reforms’ are merely the pompous façade to hide an economic system based on organised loot. Till a few years ago, political parties undertook a fine balancing act between populist politics and sensible economics. With the anti-corruption epidemic hitting the country, it will be very difficult for mass politicians to argue that a market-oriented, liberal economic regime provides India the best opportunity to extricate itself from endemic backwardness. The growing ‘sab chor hai’ mood will make it virtually impossible for the reformists to convince the electorate that they need to pay more for power, fuel and cooking gas for the sake of a system that is tailor-made for the well connected.

Circumstances generate strange symbols of both affection and disrepute. In the past fortnight, the popular imagination has come to associate Robert Vadra with greed, privilege and arrogance—everything that Middle India has learnt to despise. As the imagery of a brat percolates down the social ladder, the Gandhis will have to some hard sell to redeem the family reputation. 

The Telegraph, October 12, 2012

WHY REFORMS ARE BACK - A reforms agenda born of economic conviction has few takers

By Swapan Dasgupta

There is a singularly purposeless battle being fought on television and the pages of the print media which can be given a simple title: ‘remember’. Remember what an approach paper of the erstwhile National Democratic Alliance said about foreign direct investment in retail in 2002? Remember the pronouncement of the Bharatiya Janata Party’s Vision Document on the same subject in 2004? Remember what the then Leader of Opposition Manmohan Singh wrote in a letter to a retail trade organisation in 2002? Remember what Arun Shourie said in Parliament around the same time and square it with what he is saying now? Remember the assurance given to Parliament earlier this year by the then Finance Minister Pranab Mukherjee about ‘consultations’ preceding any move to permit foreign capital in retail trade? And so on.

Consistency being the virtue of little minds, the only discernible winners in the ‘Remember’ game happens to be Communists, Mamata Banerjee and functionaries of the Rashtriya Swayamsevak Sangh who have kept away from electoral politics. Apart from them, almost every mainstream party, be it the Congress or the BJP, stands guilty of inconsistency or, as the Breaking News scroll on TV would have us believe, ‘doublespeak’.

‘There is no inconsistency’, those charged with the offence will doubtless argue, ‘there was a context to the earlier stand.’ That is stating the obvious. Every position and every political move always has a ‘context’. When the BJP cosied up to foreign direct investment during the NDA years they did so because they imagined the timing was right: India was on a high and Prime Minister Atal Behari Vajpayee was dreaming of a sustained 10 per cent growth that would keep the alliance in power for the foreseeable future. When the Congress opposed the 2002 initiative, it did so because it believed it would expose the saffron party’s swadeshi pretensions and highlight its elitist orientation. Today, the Congress wants a rash of FDI initiatives because it seeks to reassure global investors that India hasn’t lost the plot. And the BJP is back to its swadeshi ways because it is convinced that ‘reforms’ are just a ploy to divert attention from the Congress’ record of corruption and fiscal mismanagement. Additionally, there is the BJP’s loyal base of small traders in the Hindi heartland to cater to.

There is one overriding message that flows from the transition from correctness to correctness: political parties (with some dishonourable exceptions) are not committed to non-negotiable economic philosophies. This by itself is not such a bad thing. India’s experiences with economic experiments based on ideologies that have ostensibly been adapted to Indian conditions have not been encouraging. The socialistic path, for example, had run out of steam by the late-1960s when India became a third-rate, shortage economy that lived a ‘ship-to-mouth’ existence. Yet, the formal recognition that it was time to change course didn’t happen till 1991, although Rajiv Gandhi did make tentative moves in that direction.

Was September 2012 another 1991 moment, as the Prime Minister hinted in his bland address to the nation? The Confederation of Indian Industry and some other industry bodies seem to believe so, and they have extended enthusiastic support to the ‘reforms’ agenda. Unfortunately, the evidence isn’t so conclusive.

For a start, it is pertinent to ask why the UPA Government slept over much-needed reforms for a full eight years?  Mamnmohan Singh inherited an economy that was well poised to benefit from the business-friendly measures and the structural reforms, including fiscal consolidation, initiated by the Vajpayee Government. For nearly four years, the UPA-1 regime wallowed in the positive fallout of these steps. It shifted the Government’s priority from the creation of infrastructure to the creation of welfare net for the aam aadmi. The total quantum of subsidies, for example, rose from Rs 57,125 crore in 2006-07 to Rs 2,16,297 crore in 2011-12. The fiscal deficit rose from 3.3 per cent of GDP to 5.8 per cent in the same period. At the same time, the UPA halted and indeed reversed the NDA bid to roll back the frontiers of the state. Most important, the NDA Government’s attempt to facilitate entrepreneurship and make life easier for business was abandoned. The term ‘reforms’ disappeared from the official vocabulary and was replaced by a new word—‘entitlements’.

The shift in the strategic thrust of government was given a resounding thumbs-up by the electorate in 2009. A post-mortem of that election suggests that many of the UPA’s populist measures, notably the introduction of the National Rural Employment Guarantee Act, the generous waiver of loans to farmers and the freeze on prices of petroleum products helped the Congress upstage a disoriented BJP which, in any case, had dialled a wrong number on the Indo-US nuclear accord.

The UPA’s re-election in 2009 also led to a strange consensus among the entire political class. While it was acknowledged that India had changed unrecognisably since the liberalisation process began in 1991, the political class arrived at the simultaneous conclusion that reforms and market-friendly policies don’t and can’t win elections. The lessons of the NDA’s failure to secure re-election in 2004 through its ‘India Shining’ theme were imbibed by all parties, as were the implications of the UPA’s victory in 2009 on a populist plank.

The BJP responded by shifting tack from aspirational politics to espousing ‘good governance’ which covered a multitude of approaches. These ranged from Narendra Modi’s relentless quest for higher growth through entrepreneurship and infrastructure-building to Shivraj Singh Chauhan’s perusal of efficient Keynesianism. An invitee to a recent conference of BJP chief ministers was struck by how difficult it was difficult to achieve a measure of consensus on national economic priorities.

On its part, the Congress which always carried the inheritance of an over-burdened state, thought of economic restructuring in two ways. First, it was justified as a measure of expediency to stave off a crisis. Alternatively, for the more cynical, a measure of extra space to the private sector was perceived in terms of cronyism. Just as the public sector had also served as a means of patronage and a nest egg for loyalists, the private sector and, indeed, foreign capital, began to be seen as a milch cow. The commodities boom and the sharp rise in the value of real estate fuelled these tendencies and turned growth into greed, as did the maze of clearances an entrepreneur had to negotiate.

Over the past two years, industry bodies, India-watchers overseas and the ratings agencies made ‘policy paralysis’ and the absence of reforms the focal point of their dissatisfaction with UPA-2. However, despite the prognosis of a crisis of monumental proportions, it is significant that ‘reforms’ had slipped away from the lexicon of the political class. Its abrupt reappearance a fortnight ago had as much to do with a fear of the fiscal deficit running riot, the rupee sliding further and corruption becoming a battering ram against the government. The Government needed a short-term agenda to talk up the market and pool resources to fund a Food Security Bill and a possible universal healthcare scheme in next year’s Budget. A reforms agenda born of economic conviction has few takers.

This, indeed, is the problem the UPA-2 has to confront. It needs to talk reforms to instil confidence among investors and the creamy layer of the middle classes. Yet, its understanding of politics indicates that only sops, hand-outs and populism are electorally viable. Unless the mind of India undergoes a miraculous transformation, Manmohan Singh has only the smallest window of opportunity before his reformism is subsumed by political common sense. 

The Telegraph, September 28, 2012

Pranab didn’t trigger economy downturn

By Swapan Dasgupta

There is, it would seem, no place for gratitude in politics. It took the presiding deities of UPA-2 less than 48 hours after he left office to start the whisper that the ills of the economy are due to the man who will be the next President of India. For Pranab Mukherjee, the unkindest cut was the fact that the new revisionism seemed to be emanating from people close to the Prime Minister—a man whose job he saved on a number of occasions through his fire-fighting abilities.

Not that the calumny heaped on the outgoing Finance Minister is entirely unwarranted. Mukherjee didn’t trigger the economic downturn that is now contributing to the Government’s eroding popularity. However, his Budget last May certainly hastened the larger erosion of confidence in the India story.

Was Mukherjee, therefore, plain bloody-minded or still dreaming of the halcyon days of Indira Gandhi when the Government directed and capitalists bowed in submission? Alternatively, was Mukherjee the archetypal pragmatist who believed that politics was the art of the possible?

The past record seems to suggest that Mukherjee adjusted to the grim realities of coalition government far better than most Congress leaders who still imagine they are in a one-party government. In UPA-1, as External Affairs minister, he was berated for dragging his feet on the Indo-US nuclear deal. It was then believed that he was just too dependent on the CPI(M) to win his Lok Sabha seat. It was also suggested that he was too stuck in old non-alignment ways to be enamoured of closer ties with the US.

Whatever the truth, Mukherjee always played cautiously. I have always insisted that the over-arching philosophy behind this year’s Budget was charmingly simple: to get it through the Lok Sabha without too much fuss. He paid lip service to fiscal responsibility, genuflected at the altar of the anti-corruption movement by promising GAAR, reiterated the assurance of a Food Security Bill next year and waved the populist sword at Vodafone. The Congress benches cheered, the private sector was muted in its criticism and the Opposition didn’t quite find a specific issue to mobilise opinion against the Government. Even Mamata Banerjee couldn’t find fault.

That the Budget was a monumental exercise in evasion was undeniable. Yet, judging by the yardstick of political expediency, it was a masterstroke and this is becoming apparent with each passing day.

For the past three weeks, there has been a frenzied attempt by the PMO to suggest that the bad days are behind us, and that with the PM at the helm the country can look forward to a bout of purposeful reforms—the return of the proverbial “animal spirit”. ‘Just wait until October’, the country is being told, presumably because the dust from the presidential election and the monsoon session of Parliament would have settled.

Maybe we should wait until October to be told that January 2013 will be more propitious because the Himachal Pradesh and Gujarat elections will be over by then. Maybe we should wait for the next Budget in February for big bang announcements that will set the Indian tiger roaring.

But maybe, and just maybe, it is entirely possible that the PM is discovering to his cost that it is easier to talk reforms than undertake them. Take the small example of the Forward Contract Regulating Bill—permitting forward trading in specified agricultural commodities to ensure better returns to farmers—that was supposed to have been cleared by the Cabinet last Thursday. It was not even taken up for discussion because a Trinamool Congress minister had sent a letter of objection. By this logic, neither the Pensions Bill nor FDI in retail will be taken up because Mamata is opposed to both.

What, therefore, happened to the promised purposefulness? Why wait until Pranab Babu is ensconced in Rashtrapati Bhavan because the TMC is, in any case, unlikely to vote for him?

With 20 Lok Sabha MPs, Mamata cannot be entirely disregarded. But look at the alacrity with which Ajit Singh’s displeasure over an extension to the Director-General of Civil Aviation was met. And the Rashtriya Lok Dal has just four MPs and nowhere to go.

The reality which is gradually dawning is that the UPA-2 is such a leaky ship that it dare not risk a bout of turbulence. Reforms are not merely about getting more foreign direct investment and getting the foreign funds to remain invested in the country. It is also about managing government expenditure and lowering the quantum of subsidies. These involve decisions that are potentially unpopular to both a venal political class and to consumers, even if they contribute to the long-term good. Just look at the proceedings of the National Advisory Council to see whether these priorities are shared by Sonia Gandhi’s pet activists.

The over-politicised Planning Commission is trying to help the PM out by doling out largesse to Uttar Pradesh and Bihar in the hope of political returns. But put yourself in the shoes of Mulayam and Nitish Kumar. What earthly political returns can accrue by being seen to be associated with decisions that inflict short-term pain?

At the risk of crediting Pranab Babu will too much foresight, it is possible he knew the state of the wicket. Maybe the PM should tell his managers to temper expectations and on his part focus on baby steps to restore India’s confidence in India.


Sunday Pioneer, July 15, 2012 

The lost art of governance

By Swapan Dasgupta

Union Law Minister Salman Khurshid’s apparent exasperation with Congress General Secretary Rahul Gandhi for the latter’s failure to undertake his responsibilities as the de-facto Number Two became a talking point in political circles this week.

Predictably, the focus was on the Congress heir apparent for his rather casual approach to the crisis that has overwhelmed the Congress Party and the UPA-2 Government. However, what was less noticed was Khurshid’s parallel indictment of a Government in which he is a Cabinet minister. In UPA-2, he said, “governance and politics have all got intermingled. The political props have all got mixed up. It’s a scattered situation.” Khurshid did not elaborate on the details of this dispersal. But he said enough: “It’s not only economic reforms that have slowed down. Even political and administrative reforms have not happened because of this situation.” Translated into plain English, the minister was saying that UPA-2 was dysfunctional.

Coming as it did within a day of the Government over-reacting to a Time magazine article dubbing the Prime Minister an “under-achiever”, Khurshid’s comments added to the overall Congress despondency with the prevailing state of politics. Together, they also punctured the attempt by the Prime Minister’s Office to suggest that the departure of Pranab Mukherjee from North Block has made the Government more purposeful and set the stage for a bout of course-correcting reforms.  

The attempt to talk up the economy and restore a measure of confidence in a faltering economy was well-intentioned. Unfortunately, they always lacked a substantial political basis. Observers could not but gauge the fact that all the activity seemed to be centred on the utterances of three individuals: Montek Singh Ahluwalia, C.Rangarajan and Kaushik. There was a beeline of prominent industrialists who met Ahluwalia at Yojana Bhavan; Rangarajan, in his capacity as the head of the Prime Minister’s Economic Advisory Council, met a delegation from the Confederation of Indian Industry who presented him with demands for interest rate cuts and a special booster package for industry; and Kaushik Basu travelled to Kolkata to appeal to the intractable Mamata Banerjee to support the opening-up of the retail sector to foreign investment.

Two things were quite noticeable from these meetings. First, the three individuals at the helm of the confidence-building initiatives were all technocrats, uninvolved in the political decision-making of UPA-2. Secondly, the pro-reform pep talk by the three eminent economists wasn’t accompanied by any corresponding political initiative. Apart from Home Minister P.Chidambaram who scored a self-goal with his gratuitous comments on middle-class selfishness, none of the heavyweights of either the Congress Party or its allies joined in the chorus. It almost seemed that economic reforms was a special obsession of the Prime Minister and disconnected from politics.

Indeed, the past week also witnessed a meeting of the National Advisory Council, the equivalent of Congress President Sonia Gandhi’s Star Chamber. Had the NAC made noises supportive of economic reforms, it would have been a tremendous boost to the self-confidence of the Prime Minister and indicated that what was being argued by the economists also had the backing of the social sector activists who are so dear to Sonia. Unfortunately for him, the NAC didn’t deviate from its old script. To those in Lutyens’ Delhi accustomed to reading tea leaves, the message was clear.

Khurshid spoke about governance and politics having got intermingled. In a democracy that is inevitable. When he presented his Budget last March at a time when the Government was looking distinctly fragile, Pranab Mukherjee had one paramount objective: to ensure that the Finance Bill was passed in the Lok Sabha without too much fuss. Mukherjee was, if nothing else, a deft political manager who was aware of the Government’s limitations. He, therefore, chose to gloss over the details of how subsidies could be reduced without raising diesel and cooking gas prices. He was equally vague and disingenuous about how the fiscal deficit was to be reduced.

Today, Mukherjee is being pilloried for his obduracy on retrospective taxes and his insistence on GAAR—all indicative of a pre-1991 mindset of controls. There is no doubt that he is guilty as charged. But India’s next President was also clear in his mind that he had very little elbow room for reforms. In particular, he was aware that reducing government expenditure was simply unacceptable to backbench MPs and to Sonia Gandhi who has her heart set on the proposed Food Security Act. Mukherjee took the line of least resistance and hoped that someone else would carry the can next year. No wonder he was so anxious to take the short walk from North Block to Rashtrapati Bhavan.  

In trying to disentangle economics from politics, the Prime Minister is trying to achieve the impossible. The harsh truth is that there is no consensus either in the Congress, the UPA-2 or for that matter in the rest of society over what exactly needs to be done to kick-start the economy. Today, the problems have escalated to a point that neither foreign investment in retail nor the Pensions Bill will put India back on track. On the contrary, these moves are calculated to be contentious and trigger political turmoil.

Governments can do what is needed in the first two years of an administration. The election season normally begins after 36 months. Tragically, the UPA-2 lost the plot even before the midway stage. 

Deccan Chronicle/ Asian Age, July 13, 2012

PLOT OF A GROWTH STORY - Where Narendra Modi stands in relation to the Gujarat miracle

By Swapan Dasgupta

The mere mention of Narendra Modi evokes controversy. To his admirers, the Chief Minister of Gujarat is the type of no-nonsense leader India needs at this juncture. Decisive, single-mindedly purposeful, hugely popular in his state and with an uncontested reputation for honesty and personal integrity, he is seen as the leader who has steered Gujarat in the direction of efficient growth. To his detractors, Modi’s style of leadership is authoritarian, divisive and unsuited to a complex and diverse country such as India.

The debate over Modi and his style of leadership was hitherto centred on Gujarat. However, now that the Bharatiya Janata Party is very seriously considering projecting him as a possible prime ministerial candidate for the 2014 election, the battle over Modi’s credentials has acquired national importance.

To gain acceptance on the national stage as a serious claimant for the masnad of Delhi, Modi must first demonstrate his continuing hold over his home state. To that extent, the Assembly election in Gujarat scheduled for December this year has acquired a pan-Indian significance. If Modi prevails for the third consecutive occasion, it is more than likely that his burgeoning fan club will make it impossible for the BJP leadership to deny him the top slot in the hierarchy. A defeat, on the other hand, will reopen the leadership question in India’s premier opposition party.

In the Gujarat Assembly elections of 2002 and 2007, the opposition to Modi was focussed on two points: his handling of the 2002 riots and the so-called alienation of the powerful Patel community. Modi was able to brush away his opponents by invoking regional pride and, in 2007, pointing to his achievements in governance. For the forthcoming election, his opponents appear to have changed tack. Wiser with the knowledge that a Modi-centric campaign actually helped the incumbent, their approach is likely to be different.

Of course, the grievances of the Patel community are once again likely to feature thanks to the decision of the veteran Keshubhai Patel to forge a Third Front of sorts. However, the Congress seems to be gearing up for a very different sort of campaign: questioning Modi’s credentials as the new messiah of development.  

Judging by the intellectual test marketing of the new anti-Modi rhetoric, what is significant is that the old secular-communal issue and the riots of 2002 will not feature. There appears to be recognition in the state Congress that reopening the old wounds actually benefits Modi. Gujarat, it would seem, is anxious to forget the 2002 nightmare for two reasons: the lapse of a decade and a new prosperity that in turn has created an yearning for stability and good governance.

The assault on Modi is likely to be on two issues. First, it is being suggested that Gujarat, far from being the beacon of development in India, has actually under-performed on crucial fronts. The claim is that Modi’s reputation as a formidable administrator owes more to hype and slick public relations than to hard reality.

The second point of attack is more complex and aimed at reassuring voters that meaningful progress will continue in a post-Modi Gujarat. The development of Gujarat, it is being said, owes nothing to Modi: the Chief Minister has merely ridden piggyback on a pre-existing high growth rate which owes everything to location and the entrepreneurial spirit of the Gujaratis. Modi or no Modi, it is being said, Gujarat would have developed anyway. As Bihar Chief Minister Nitish Kumar, who regards Modi as an unacceptable feature of Indian politics, pointed out in a recent interview, there is no big deal in developing an already developed state.

The quantum of development in Gujarat can be measured by statistics. Using statistics culled from the Planning Commission, Bibek Debroy has shown that Gujarat’s average growth has risen since the 1990s but unevenly. The average growth was 6.1 per cent during the 7^th Plan (1985-1990), 12.9 per cent during the 8^th Plan (1992-1997), 2.8 per cent during the 9^th Plan (1997 to 2002), 10.9 per cent during the 10^th Plan (2002-2007) and an estimated 11.2 per cent during the 11^th Plan (2007-2012).

What is more, the growth rate has been consistent across sectors, including in agriculture—India’s most problematic sector. Despite four years of drought, agriculture grew on an average by 10.7 per cent in the period 2001-02 to 2010-11. Most significant was the rise in cotton production from 16.8 lakh bales in 2001-02 to 104 lakh bales in 2010-2011. In the same period, industry also grew by 10.3 per cent and services by 10.9 per cent.  

Although jumping to instant political conclusions would be rash, statistical evidence would bear out the belief that sustained double-digit growth has coincided with Modi’s tenure as Chief Minister. Indeed, apart from Karnataka which equalled Gujarat’s 11.2 per cent growth during the 11^th Plan, none of the big states of India has equalled Gujarat’s sustained growth over the past decade. Modi’s critics point out that Gujarat’s growth rate has been overtaken by Bihar (which began from a zero base), Delhi (which has a special status in Delhi) and Pondicherry. But that is like saying—as some politicians do—that India’s faltering six per cent growth is better than the United States’ projected two per cent growth.

The question therefore arises: is economic growth of the kind Gujarat has witnessed over the past decade completely unrelated to politics and governance, as Modi’s critics have maintained? If true, Modi, it would appear, has steered political economy in an entirely new direction by insulating economic activity from the dirty business of politics. Aspiring for this autonomy has long been the cherished dream of the Indian corporate sector. Are Modi’s critics crediting him for this unintended achievement?

That every state must act in tandem with the DNA of its people is a given feature of public life. In suggesting that it is not the job of the government to get too embroiled in business, Modi has been pursuing the goal of minimal but focussed governance. This corresponds well with the strong entrepreneurial instincts of Gujaratis, cutting across religions. The question, however, remains: is entrepreneurship alone a sufficient precondition of growth? Or, must the state act as the great facilitator of entrepreneurship for economic growth to go beyond individual success stories and touch the community?

In the past decade, Gujarat has focussed on the upgradation of infrastructure, particularly roads and ports. In addition, the Government has taken pro-active steps to attract enterprise aggressively by laying down attractive facilities and terms. This may explain why Tata Motors abandoned the troubled Singur in West Bengal and moved to Gujarat. And it was the Tata decision that had a multiplier effect and contributed to the creation of a new automobile manufacturing hub in Gujarat. Yet, none of this would have happened had the state not established a record of low corruption, quick decision-making and nurtured a civic culture that cherished entrepreneurship. True, Modi played to the pre-existing strengths of Gujarat. But had the Chief Minister been venal, unresponsive and mindlessly populist—as he so easily could have been—would India still be talking of the Gujarat miracle?

There are many in India who have genuine political objections to Modi. They believe, as Nitish Kumar does, that a future Prime Minister must be seen to be more compassionate and appreciative of the concerns of an India that can’t cope with a market economy. There are others who say that a Prime Minister must have a more consensual and collegiate approach. But these concerns have nothing to do with claims that Modi is a fake.


The Telegraph, July 6, 2012 

Country needs leader having clear mandate

By Swapan Dasgupta

There were many unintended consequences of the chase for the tenancy of Lutyens’ grand palace on Raisina Hill. The most significant of these was the Congress Party’s public expression of faith in Prime Minister Manmohan Singh. It is true that this happened in the strangest of circumstances—a public ridicule of the PM by the short-lived Mamata-Mulayam entente and the Congress’ inexplicable 14-hour silence that was broken after persistent prodding by the PMO. But regardless of the murky gracelessness of the occasion, the fact remains that the superannuation of Pranab Mukherjee will also see Manmohan Singh enjoy security of tenure till May 2014.

For a PM who is naturally concerned about what legacy he leaves behind after two terms in office, this peace of mind is of utmost importance. No individual in a position of importance can be expected to perform if he is dogged by constant uncertainty of tenure—as Manmohan certainly was until, fortuitously, the voters of UP decided earlier this year that the designated successor wasn’t quite up to scratch. Now, the question is: what is the PM going to do with this 20-month window of opportunity?

The PM told the nation last Independence Day that he doesn’t possess a “magic wand”. Unfortunately for him, this is precisely what a large section of India hopes he has. With President-designate Mukherjee having bequeathed to him an economy in near-shambles, public expectations from the PM have reached dizzying heights. Corporate India wants him to restore the GDP to an acceptable level, his party wants him to create a political terrain that will allow the UPA to make a fight of the 2014 election, and ordinary people want a return of purposeful governance.

The national charter of demands from the PM is daunting. What is even more troubling is that that the repair job doesn’t merely call for technocratic expertise; it necessitates political clout. The likes of Montek Singh Ahluwalia and C. Rangarajan, the Praetorian Guards of the PM, believe that a restoration of global confidence in India coupled with a booster dose of ‘reforms’ will see the country back on track. Their implicit message over the past few weeks is simple: have faith in the PM and leave it to the experts.

It is not a reassuring message. Among the main reasons why the mere existence of a crisis was denied till the Rupee went into a free fall six weeks ago and the ratings agencies started publishing adverse reports, was that the Government was itself confused over its priorities. Should it play to the galleries and enlarge the scope of entitlements, or should it attend to issues such as the fiscal deficit, investor confidence and the GDP? What is interesting is that in the face of severe hiccups, the Congress has failed to engage with these choices politically. The urgency and clear-headed ruthlessness it has shown in matters affecting its very survival and the reputation of Sonia Gandhi have not been replicated in any project to extricate the economy from its present made-in-India crisis.

The result is all too visible: the PM doesn’t have any clear political mandate for attending to the economic mismanagement. What is even worse is that he has not felt it necessary to seek this mandate from his party. Consequently, governance has degenerated into a one-step-forward, two-steps-backward exercise. No wonder there has been a mushrooming of committees, the time-tested recipe for prevarication. Even on a clear-cut issue as the contentious GAAR, the bureaucracy has been able to stall a quick confidence-building step.

But why blame the babus? The paralysis in governance can also be attributed to the regime’s low integrity quotient. With corruption clouds hovering over too many senior ministers, there is systemic reluctance to undertake steps that short-circuit an exhaustive due diligence process. Ironically, the pressures for greater transparency and accountability have ended up slowing down the wheels of government at a time when rapid response is imperative.

The situation demands two developments: an end to the political logjam through a clear popular mandate, and the leadership of an ‘outsider’ dedicated to brushing away the accumulated cobwebs from government. Sadly, Manmohan is too much of a creature of a plodding system.


Sunday Times of India, July 1, 2012 

Sonia weakens, but is PM stronger?

By Swapan Dasgupta

Chief Economic Adviser Kaushik Basu is not your average technocratic hack whose political bias needs to be seriously discounted. Therefore, when he pronounced last Friday that India’s economic growth will be back on track by October, there was reason to feel hopeful. Unfortunately, thanks to the Government’s impressive record of bullish talk that is not complemented by realities on the ground—remember the talk of prices coming down within 100 days of UPA-II assuming power—Basu should not feel slighted if his optimism is not widely shared.

It is not that stakeholders are unreceptive to good news. It took the Finance Ministry, now under the direct charge of the Prime Minister, to promise a review of the more ridiculous facets of Pranab Mukherjee’s Budget for the Sensex to gain 439 points on a single day and for the Indian Rupee to appreciate in value. That it took so little effort to boost sentiment merely shows the extent to which the despondency over economic mismanagement was also accompanied by a feeling that many of the problems confronting India are self-inflicted. India is anxious for good news but the Government has given them so little to be cheerful about.

So deep is the dejection that the PMO’s tweet about the Government helping India to recover the “animal spirit” in the economy was accompanied by an innocent question: Is the mouse an animal?

It’s a question that will be uppermost in the minds of both Indians and all those with a stake in India. For too long, Manmohan Singh has given the impression that he has abdicated his larger responsibilities. He has watched passively as important Cabinet ministers took decisions and acted in a way that was inimical to the interests of the country. He probably knew that what they were doing was wrong and often unethical—the 2-G issue is a prime example. Yet, he did nothing to guide them into doing the right thing—thereby fostering the impression that he was too weak to intervene.

Are things different now that he is also wearing the hat of the Finance Minister? Is the troika of Manmohan-Montek Singh Ahluwalia-C.Rangarajan the equivalent of Douglas Jardine’s team that decimated an Australian side which included the legendary Don Bradman? With Bodyline bowling, Jardine displayed an “animal spirit” not hitherto associated with either the MCC or indeed cricket. Will Manmohan ruthlessly sweep away the bureaucratic inertia and the sanctions raj and make India an entrepreneur-friendly country? Will he complement the natural Indian desire to create wealth with purposeful governance?

The problem is that when the issue of ‘reforms’ is scrutinised for concrete details, last Friday’s stock market rally begins to look like a bout of irrational exuberance. There was a time when good politics and good economics meant government doing as little as possible and allowing market forces to do the needful. Unfortunately, that time is long gone.

The souring of the India story owes a great deal to malevolent governance. The fiscal deficit cannot be brought under control unless government expenditure keeps a healthy balance with revenues; the bottlenecks in production cannot be removed unless the government attends to the power deficit, speeds up work on the Mumbai-Delhi corridor, improves surface transport and improves the productivity of ports; and entrepreneurship cannot flower unless the number of official sanctions is sharply reduced, corruption is brought under control and environmental clearances stop being used as a political plaything.

There is, of course, another grave issue that the PM must address. For the past seven years, there has been a divergence of approach involving the political head of the government and the nominal head of the Cabinet. This has led to policy incoherence and drift. Sonia Gandhi wants to be India’s Lady Bountiful, doling out largesse to the poor and needy; Manmohan Singh wants to revive the “animal spirit” in the people. The two approaches just don’t converge—not even through the over-use of a meaningless phrase called ‘inclusive’ growth.

The issue that, therefore, has to be explored is simple: has the balance of power tilted abruptly against Sonia Gandhi after a series of embarrassments over the presidential election? Yes, there is no question that all the sophistry of Digvijay Singh hasn’t been able to dispel the belief that the Congress President is weaker than she was six months ago. More than being forced to select Pranab Babu over her preferred choice Hamid Ansari, it is the defeat in Uttar Pradesh and the decimation in Andhra Pradesh that have undermined the dynastic forces. Add to this the sorry spectacle of the heir apparent reduced to making sporadic appearances and performing item numbers that have no bearing on the main plot, and the demoralisation of the Congress will be apparent.

However, the weakening of Sonia hasn’t led to a corresponding enhancement of the PM’s political clout. That the PM still has to bank on Montek and Rangarajan to fulfil his economic agenda shows how clearly isolated he is in the political arena. Jairam Ramesh’s decision to both submit and publicise his job application as Finance Minister to 10 Janpath suggests that Manmohan’s continuation as Finance Minister is not a given. In any case, the PM will be loath to face up to insolent parliamentary interrogation in the Monsoon session.

To attend to India’s faltering economy, the country has to first address the political listlessness.


Sunday Pioneer, July 1, 2012

Prisoners of Xanadu

By Swapan Dasgupta

Among the more curious features of public life in this country is the disinclination of subordinates to pass on bad news to the boss. This stems from our natural inclination for flattery and a tendency to equate the messenger with the message.

In the 1960s, the generals gave the Prime Minister a misleading picture of our defence preparedness along India’s eastern borders; in 1977, intelligence agencies gave Indira Gandhi a very rosy picture of the public response to the Emergency; and earlier this year, self-serving Congress apparatchiks and participatory psephologists told Rahul Gandhi that he was taking Uttar Pradesh by storm. This week, after repeating ad nauseam that India would have a normal monsoon, the meteorological department (whose job is to provide accurate forecasts and not manage the economy) has grudgingly admitted that the rains are proving a bit disappointing but that it will be all right in the end.

A Churchillian determination to talk up national morale in times of war is understandable, and even commendable. However, its indiscriminate use, as recent events in India show, can be woefully counter-productive. Throughout this year, the government has been in denial over the state of the economy, pretending like in the film 3 Idiots that “all is well” and that only the envious are making awkward noises.

In January this year, Montek Singh Ahluwalia, who, apart from being the deputy chairman of the Planning Commission, also doubles up as the government’s chief pundit on economics, was telling gullible Indians that “the current downturn in economic growth due to developments in euro zone, had bottomed out”, that the “economy was on its way back to the high growth trajectory as the inflation was subsiding and the rupee stabilising against the dollar.”

Nearly five months later, on June 11, reacting to a Standard & Poor’s report suggesting that India could soon become a “fallen angel” unless the government woke up to its obligations, finance minister Pranab Mukherjee said that the ratings agency had got it all wrong. India, he asserted on a day when statistics recorded the country’s industrial production to be stagnant, was actually poised for a dramatic “turnaround” in 2012-13. All that India needed to get back to the nine per cent growth on which the Planning Commission is apparently basing its 12th Five-Year Plan calculations, was to hold its breath, undertake a modest austerity regime and pray that Greece doesn’t go bankrupt. To drive home the new purposefulness, Prime Minister Manmohan Singh even held a proverbial “high-powered” meeting of ministers last week and, like a hard taskmaster, set targets that must be achieved.

The fact that in just two years India has made a transition from being the flavour of the season to a point where investments in the country are on the verge of being viewed as “speculative” is nothing short of remarkable. The question naturally arises: did the government not read the writing on the wall? If there is now a sudden flurry of activity to remove infrastructural bottlenecks, why was this not done earlier?

The answers, as the S&P report rightly notes, are almost entirely political. Ever since it was re-elected in 2009, the UPA-2 has proceeded on the specious assumption that the India story is divinely ordained, and that it fell on the government to merely manage the spoils of growth. It was this smugness that was responsible for the 2G fiasco, the scandals over the Commonwealth Games and the preoccupation with creating a network of entitlements aimed at ensuring repeated re-election. The implications of individual ministers doing their own thing and the regression into a complex regime of labyrinthine controls were overlooked. The government went into a denial mode, blotting out the bad news.

It would be no exaggeration to suggest that until the precipitate slide in the value of the rupee earlier this summer and the grim data of industrial stagnation, the political class as a whole was blissfully unaware of the magnitude of the economic crisis. It was assumed that the real problem was inflation. Once that beast had been tamed — as the government was insistent it would — things would be hunky-dory once again. It is interesting that the issues which agitated the Congress until a few months ago was the career of Mr Gandhi, the proposed legislation on land acquisition, the sub-quota for minorities and the proposed Food Security Bill which would upstage the MNREGA as the new magic wand of electoral success. The report card released by the UPA-2 on its third anniversary dinner last month still spoke in terms of India being one of the world’s fastest growing economies. The issues raised by the S&P report were neither mentioned nor addressed. The regime had become a prisoner of its own make-believe world.

The move from denial to disaster management is always difficult to manage. In times of adversity, the Congress has responded in two familiar ways: by either retreating into despondency (as P.V. Narasimha Rao did in the run-up to the 1996 election) or falling back on shrillness (as Indira Gandhi did in 1975 and Rajiv Gandhi attempted to do in 1988-89). Dr Singh is temperamentally more inclined to following the course set by Rao but he doesn’t control a party that is itching to rediscover the “destabilisation” rhetoric. Consequently, India must brace itself for at least two years of cacophonic drift.

Deccan Chronicle/ Asian Age, June 15, 2012