Tuesday, January 30, 2018

Economic Survey 2017-18 avoids telling lies, and does not tell the truth

Chief Economic Adviser Arvind Subramaniam emerges as a market economist who knows the devil in the details

The first paragraph of the first chapter – State of the Economy: An Analytical Overview and Outlook for Policy – shows the dilemma of the author/authors of the Economic Survey. They are compelled to highlight what the government considers to be its great achievements, but at the same time facts demand that the problems and roadblocks had to be stated as well. One might call it intellectual honesty, but a more critical analysis would have offered a clearer picture. The first paragraph:

The past year has been marked by some major reforms. The transformational Goods and Services Tax (GST) was launched in July 2017. With a policy of such scale, scope and complexity, the transition unsurprisingly encountered challenges of policy, law and information technology systems, which especially affected the informal sector. Expeditious responses followed to rationalize and reduce rates and simplify compliance burdens.”

 There was a lack of understanding and preparation on the part of the government. It wanted to take the plunge in a spirit of bravado, and it created stresses and strains to everyone except itself. And constitutionally speaking, the GST Council, comprising the finance ministers of the states and the Union Territories (UTs) with the Union Finance Minister at its head and consensus as its mode of decision-making, turns out to be an administrative monstrosity, and it goes against the very principle of federalism. Prime Minister Narender Modi and Finance Minister Arun Jaitley use the euphemism of ‘cooperative federalism” to describe the short-circuiting of federalism. What the GST does is to take the away the powers of each state to tax according to its own economic viability. The government’s tendency to concentrate powers of administration is given a futuristic hint in Chapter IV with the title, “Reconciling Fiscal Federalism and Accountability: Is there a Low Equilibrium Trap”, where the financial viability of the rural local government (RLG) and the urban local government (ULG) is questioned, and especially the RLG, who depend on devolved tax revenues, and the question is asked whether state governments are doing enough on devolving the revenues, the demand which the states make on the centre. The Modi-led BJP government is looking for efficient ways of collecting the tax at one point and assuring that the revenues will be devolved each according to his need. This is fascism in governance.

There is further hint of what cooperative federalism could lead to with the caveat: “Cooperative federalism is of course not a substitute for states’ own efforts at furthering economic and social development.” The suggestion is that the “cooperative federalism technology” could be used by the GST Council to create a common agricultural market, amalgamate inefficient electricity markets, solve inter-state water disputes and also tackle air pollution. The monstrosity of cooperative federalism as frozen as in the GST Council unfolds.

The next interesting part comes in the third paragraph:

Macroeconomic developments in this year have been marked by swings. In the first year, India’s economic temporarily “decoupled” decelerating as the rest of the world  accelerated – even as it remained the second best performer amongst major countries, with strong macroecomomic fundamentals. The reason lay in the series of actions and developments that buffeted the economy: demonetization, teething difficulties in the new GST, high and rising real interest rates, an intensifying overhang from the increasing TBS [Twin Balance Sheet] challenge, and sharp falls in certain food prices that impacted agricultural incomes.”

In the second half there were “robust signs of revival” because “shocks began to fade” and “corrective actions” taken and “the synchronous global economic recovery boosted exports.” But that is not end of the story of premature and unthinking decisions taken and corrected. “Fiscal deficits, current account, and inflation were all higher than expected” and part of the blame was laid at the door of rising international oil prices ‘’India’s historic macroeconomic vulnerability.”

We now know as to why the growth rate for 2017-18 was pegged at a modest, sub-optimum 6.75 per cent, and very much less than the 7.3 per cent estimated by the International Fund (IMF). The projection of 7 to 7.5 per cent growth rate for 2018-19 is not sanguine. The situation has been aptly, if cleverly, described as “dualities of revival and risk”.

The other issue that comes for praise followed by a cautionary statutory warning is about shift from subsidies to “public provision of essential private goods and services at low prices, especially to the poor.” But this can be termed a success only if toilet building leads to toilet use, bank accounts lead to financial inclusion – the opening of bank accounts in itself is not sufficient –, cooking gas connection leads to gas offtake and village electrification leads to household connections. That is a tall order indeed. The government can claim that it has started the process and it will not be its fault if all of this does not lead to fruition. The truth that cannot be hidden is that transformation cannot be achieved through government fiat.

And there are some stark confessions about the limitations of government policy interventions. It is pointed out “that while there are significant social and economic benefits to attacking corruption and weak governance, addressing those pathologies entails challenges. In the vase of the GST and demonetization, informal cash-intensive sectors were impacted.”

And about the much-touted advantages of auctioning of natural resources, the Survey points out the embedded ambiguity: “In the case of spectrum coal and renewables, auctions may have led to a winners’ curse, whereby firms overbid for assets, leading to adverse consequences in each of the sectors; but they created transparency and avoided rent-seeking with enormous benefits, actual and perceptional.” The use of the word “perceptional” is very interesting. The “perceptional” benefit could be more than the “actual”.

The Survey tackles the moot question of how much a state can do things at a time when Prime Minister Modi believes that he will wrought magic in the country through governmental intervention. The Survey notes: “But Indian is in a grey zone of uncertainty on the role of states and markets. Limitations on state capacity (centre and states) affect the delivery of essential services such as health and education. At the same time, the introduction of technology and the JAM (Jan Dhan—Aadhaar--Mobile), now enhanced by the Unified Payments Interface (UIP) holds the potential for significant improvements in such capacity.” The words to be noted are “potential”, “significant improvement”.

And as to manufacturing in India, the problem it has not made the grade of international competitiveness which is reflected in the “declining manufacturing-export-GDP ratio and manufacturing trade balance”. This combined with “real effective exchange rate appreciating about 21 per cent since January 2014” has only added to the woes of manufacturers. The government is in a fix and it is not its fault. There are too many problems, and the achievements pale before the problems!

Friday, January 05, 2018

Arun Jaitley's sober assessment of the economy

In reply to a short duration discussion on the state of the economy in the Rajya Sabha on Thrusday, Finance Minister Arun Jaitley avoided political barbs and admitted that the economy faced challenges, indirectly conceded that implementation of GST has led to fall in revenues. He said after the shortfalls in the short-term, there would be long-term gains. He pointed out that the NPAs built up because of reckless lending by the public sector banks and lack of risk management. He said that the government was bound to save the banks from the burden of NPAs through recapitalisation, and it could not allow the banks to sink under the NPA burden because the money of the public was involved.
He pointed out the sanguine growth rates that India clocked between 2003 and 2011 was because of healthy growth in the world economy, and that when the world economic growth fell in the last part of UPa2's tenure, then it too faced problems on the growth front. He said that in the last three years, India had experienced two years of drought and that the world economy was in doldrums. He said that it is against this background of low growth in the world economy, that India's seven per cent growth stands out.
He said that under Prime Minister Narendra Modi India's credibility was restored and it was an important factor for the stable growth prospects in the near future. He said that the GST process began in Vajpayee's time, and it continued in the UPA tenure, and it was taken to its implementation phase by the NDA. He tried to emphasise the continuity in policy. He said that the government was continuing with the Aadhaar which was started by the UPA. He said that when Nandan Nilekani, the Unique Identity Authority of India, made a presentation to Prime Ministe Modi, he was convinced of its advantages, and he had asked the ministries to implement it and he also wanted it to be given statutory support. He said this government also continued with the Food Security Act, which was passed by the previous government.
He said that subsidies were being targeted so that the people who need them get it, and assured that there was no reduction in the money spent on the social welfare schemes.

The triple talaq bill hangs in mid-air, not on business list, not sent to select committee

Rajya Sabha's deputy chairman P.J.Kurien stated the complicated situation that The Muslim Women (Protection of Rights on Marriage) Bill, 217 is in the Upper House. Over-ruling objections raised by Leader of the House and Finance Minister Arun Jaitley's objections that the amendments moved by Congress' Anand Sharma and TMC's Sukhendu Sekhar Ray were invalid, Kurien said that the amendments were also motions, and that Chairman (M.Venkaiah Naidu) had allowed them, and therefore they are valid, and as the motions have been moved they are the 'property' of the House, and it is for the House to decide what should be done with them.

When Jaitley rose to reiterate the objections he had raised on Wednesday, and there were loud protests from the Opposition benches, Kurien did not allow Jaitley to go through his complete statement, and he explained to the House the position. He said that there is validity in the points made by Jaitley, but once the Chairman (Naidu) had taken the decision, he cannot over-rule it. When the Opposition members wanted the amendments/motions to be put to vote, Kurien said that the triple talaq bill was not listed as part of the government's business, and it was the GST Amendment Bill that was on the list and therefore he is going to take up the GST Amendment Bill. He adjourned the House as there was an uproar from the Opposition over the situation because Kurien was technically right because the talaq bill was not there on Thursday's legislative business list, which is proposed by the government.

It is clear that the government has kept the talaq bill away from the list. It cannot of course keep it away for long if it means to get it passed in the Rajya Sabha. It will have to find a way out either at the Business Advisory Committee (BAC) meeting or informally outside the House. The BJP then has to offer a compromise to the Opposition short of the bill being sent to a Select Committee. Or, it will have to yield to the demand, if not now then in the Budget Session which will begin at the end of January.

The BJP does not want any amendments to the bill and it wants the Rajya Sabha to pass it as it was done in the Lok Sabha, with no changes. The Congress is quite clear that it wants the criminal aspect to be modified, even removed. If the criminality aspect is removed, then there would be nothing substantial left in the bill. Sensing the intent of the opposition, Jaitley in his intervention on Thursday said the select committee should not have members who will 'sabotage' the bill, and the opposition members took objection to the word 'saboteur'.

It would appear that the responsibility of allowing the amendments/motions of Sharma and Roy now falls squarely on the shoulders of Rajya Sabha Chairman M.Venkaiah Naidu. The BJP cannot express its displeasure because Naidu has been the party's candidate. And it is clear that Naidu is playing the scrupulously neutral umpire and he will not give any leeway to the ruling party. The BJP is in a tigh spot.

Wednesday, January 03, 2018

BJP fidgety, belligerent in Rajya Sabha over triple talaq bill, Jailtey fumbles on issues related to rules and to law

The plain fact is that the BJP cannot push The Muslim Women (Protection of Rights on Marriage) Bill, 2017 in Rajya Sabha as it did in the Lok Sabha on December 28, 2017 because it does not have the numbers. The NDA has 83 if one counts in five of the nominated members, and excludes the six independents and the 13 AIADMK members. The UPA has 121 if ones includes the TRS with 3 and YSRCP's 1. As on January 3, 2018, there are 238 members in the Upper House, and both the BJP and the Congress have 57 members each. The ruling party showed its nervousness when Law Minister Ravi Shankar Prasad introduced the Bill and then made the statement amid loud protests from the Opposition benches.

The scene became testy for Deputy Chairman P.J.Kurien when he had to allow Congress's deputy leader of the House Anand Sharma moved an amendment suggesting that the Bill be referred to a House Select Committee and he gave out the names of the members from the different parties, leaving six for the ruling BJP and its NDA partners.

Leader of House and Finance Minister Arun Jaitley fumbled when he tried to show that Sharma's amendment was not valid because a Select Committee is only possible when the Bill originates in the Council of States, that is the Rajya Sabha, and not when it is transmitted. And he impliedly questioned the decision of Chairman and Vice President M.Venkaiah Naidu, who had apparently agreed to the amendment to be moved by Sharma at the Business Advisory Committee (BAC) meeting held on Tuesday evening. Vice-Chairman Kurien had over-ruled Jaitley's objection saying that once the Chairman had allowed an amendment to be moved, there cannot be any objection.

Another weak reason that Jaitley proferred was when he referred to the minority judgments of former Chief Justice J.S.Kehar and Justice Kurien, who had suspended triple talaq for six months and suggested that the legislature should bring the appropriate law and that it is no for the court to decide the issue. Jaitley argued that the six-month period ended on February 22, 2018 and it is incumbent on the legislature to pass the bill expeditiously. He was wrong. But the majority of three judges in the five-judge constitutional bench had held triple talaq to be untenable in law, even going by Islamic jurisprudence. And it is the majority judgment that is considered the law of the land. The minority judgment has no locus standi until the court's verdict is challenged and it is reviewed and the earlier judgment is overturned, where the merits of the minority judgments can be cited and approved. Until then, the minority judgment has not legal validity. It was surprising then that the lawyer in Jaitley had fumbled on the issue.

It is also the case that even after a bill has been passed in the Lok Sabha, the Rajya Sabha can choose to refer it to a Select Committee as it did in the Lok Pal Bill in 2011was stalled and it was referred to a Select Committee in May, 2012.So, Jaitley was wrong saying that the rules do not permit a bill to be referred to the House Select Committee after Lok Sabha had passed it.
The BJP members, including the ministers, were seen shouting down the Opposition when TMC's Derek Obrien and Leader of Opposition Ghulam Nabi Azad of the Congress insisted on division and voting on the issue of amendment introduced by Sharma.The BJP was not in a position to dare the opposition.

The House was adjourned when the BJP members did not concede the Opposition demand for division and voting on Sharma's amendment.

Later at the press briefing, Azad said that the Congress could not ask for a division because it did not have the numbers, which is a weak argument because he had said that the Bill as it stands is unfair, especially to Muslim women. He said there was no provision in the bill for the maintenance of the woman and the family if the man guilty of pronouncing instant talaq is imprisoned and it was non-bailable. The Congress too lacked courage of its conviction because even if it was outnumbered in the Lok Sabha, it should have insisted on voting.
Both Azad and senior party leader Veerappa Moily had pointed out that in the last three-and-a-half years, the Modi government did not allow most of the bills to be sent to the standing committee which was the convention.

Wednesday, December 13, 2017

Modi raps Ficci on the knuckles gently at its 90th AGM

Prime Minister Narendra Modi inaugurating the 90th Annual General Meeting (AGM) of the Federation of Indian and Chambers of Commerce and Industry (Ficci) in New Delhi on Wednesday rapped the industry body on the knuckles, gently by the way, on five counts. First, for not raising the alarm during the UPA tenure when bank loans were being doled out to a handful of rich industrialists which have now become the non-performing assets (NPAs) weighing down the banks, and it is a liability inherited from the previous regime. He also indirectly hinted that some of those tycoons who had borrowed from the banks huge amounts and defaulted were from among the Ficci fraternity. He said why was there no critical survey done by the industry body about the issue of NPAs.

Second, he wondered as to why it took the Ficci so long to create the MSME (micro, small and medium enterprises) vertical in 2013 when the MSME has always been a major player in the manufacturing sector. He has also said that the big manufacturers delayed payments to the small enterprises by months, and he wondered whether the payments due to MSMes could be speeded up.

Third, he said that the realty majors formed nearly one-fourth the strength of the Ficci membership, and no government until now has brought any law to regulate them. He said why is it that it was his government that had to bring in the RERA (Real Estate Regulatory Authority) Act.

He ended with the misappropriate metaphor when he said that a batsman usually goes slow when he is in in his 90s because he is anxious to reach the century, and he hoped that Ficci would not be slow in reaching a century, and that it should hit a four and a six to do so. He did not realise that the years roll by at their own pace and no one can accelerate the speed.

The rest of his speech was a litany of his government's achievements.

The Prime Minister was a different man from the one who campaigned vigorously, and even much too aggressively, in the Gujarat assembly election. But he delivered a sermon, quite a sharp one, as his wont to the big business and big industry organisation that Ficci is.

Tuesday, December 05, 2017

Shashi Kapoor's first screen appearance was in his elder-brother Raj Kapoor's 1951 film, 'Awara', playing the childhood phase of the protagonist, Raj, played by Raj Kapoor himself. The screen time was about 15 minutes, from attending a birthday party, returning to an impoverished desolate while his ailing mother, played by Leela Chitnis, asks him to eat food. There is no food, and he says he is not hungry. Then he runs out to steal bread, and the scene where he slumps against the lamp-post and the menacing villain, played by K.N.Singh, walks up to him and takes him away promising to turn him into a thief. Shashi Kapoor manages the scenes with ease, and there was little doubt that acting came to him naturally.
But when he grew up, it did not become easy. He was literally standing in the shadow of the showman, Raj Kapoor, and the "Yahoo" man Shammi Kapoor with his boisterous antics. Shashi Kapoor had to find his own way to make the mark. Shammi Kappor had to reinvent himself in 'Tumsa Nahin Dekha' with newcomer Ameeta, in 'Dil Deke Dekho' with newcomer Asha Parekh, in 'Junglee' with newcomer Saira Bano. Shashi Kapoor stuck with his own natural elegance in 'Jab Jab Phool Khile' with Nanda, in 'Aamne Saamne' with Sharmila Tagore. In 'Aamne Saamne' he showed Bond-ish flair which no one in the industry picked up. Earlier he did 'Dharmaputra', where he plays a patriot's role with admirable restraint. He also played the role of the younger sibling in the Yash Chopra-directed family drama of 1965, 'Waqt' and again carried it without much ado. He did a delightful double-role in 'Haseena Maan Jaayegi' with Babita.
He became part of the Ivory Merchant team, doing 'Shakespearewallah', 'The Guru'. There were also the 1967 'A Matter of Innocence' also known as 'Pretty Polly' based on a Noel Coward play, and his heroine in the movie was Hayley Mills, where there were interesting 'kissing scenes' which aroused much curiosity because they involved an Indian actor. Four years later, Shashi Kapoor and Simmi Garewal enacted the kissing scenes in Conrad Rooks' 'Siddhartha'. There was nothing more to that pedestrian movie.
In the 1970s, where he seemed to have had some commercial success, especially with 'Sharmeelee' with Rakhee, he was mostly overshadowed by Amitabh Bachchan. But he remained unfazed, doing movie after movie with him.
He tried to make what he believed to be good cinema. This resulted in 'Kalyug' and 'Junoon', both directed by Shyam Benegal, and 'Utsav', based on Shudraka's Sanskrit play 'Mrichchakataka' (The Little Clay Cart), directed by Girish Karnad. He acted in all three of them. Then he produced Aparna Sen-directed '36 Chowringhee Lane', where his wife Jennifer Kendall gave a heart-warming performance of an Anglo-Indian teacher. But he realised that good cinema does not pay. And he opted out dignifiedly and without bitterness.

Saturday, November 25, 2017

The new Asian outlook: Modi, Xi and Abe represent moderate right-wing nationalism

Narendra Modi, Shinzo Abe, Xi Jinping

It is a coincidence that can be interpreted as the expression of the zeitgeist or the spirit of the time that Indian Prime Minister Narendra Modi, Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe form a political constellation, and their agendas are rightist refractions of nationalist temper, but which is guardedly expressed in terms of achieving domestic well-being. Modi has his New India by 2022 vision, Xi speaks of a moderately prosperous China by 2050 and Abe is looking to revive the Japanese right to arm itself which is prohibited under the United States-imposed 1947 constitution. India ($2.2 trillion), China ($11.2 trillion) and Japan ($4.9 trillion) are the fifth, second and third largest economies in the world after the US in 2016. How does the much talked about Asian century look as we race towards the 2020s?
India is one of the strong economies by its sheer size though there are too many structural weaknesses which cannot be wished away. It is a stuttering economic engine, which is yet to get into the top gear of double-digit growth for a decade and more. China’s heated economic growth of three decades is slowing down though it is far from a state of entropy. The great challenge, political as well as economic, that China is facing is corruption, which should ring a bell for Modi. It is the Japanese economy which appears to be in a state of entropy after clocking amazing growth through the 1950s to 1980s. It has been experiencing a stagnation trap from the early 1990s onwards, despite interest rates hovering at zero and a little above it, but without much success.
The paradox is this. Asia’s biggest economies are at the top of the league in many ways though the US and the European Union are still throwing their weight around. Among the three economic giants, it is China that can flex its political muscle on the global stage. Xi has however assured that China is not interested in hegemonic games while Beijing throws tantrums in South China Sea, and the relatively well-to-do ASEAN economies feel a little helpless in the face of China, and look to the US to counter Beijing’s overwhelming presence the region.
The US, which is yet to recover from the economic battering of the 2007 financial meltdown, is looking to India, Japan and Australia to do the job of keeping China at bay. Japan would not want to repeat its blunder of aggression which it had committed in the 1930s. It is quite keen to mend it fences with China despite the periodic eruption of frayed tempers on both sides, more so on the part of China. Indian nationalists may want to cross swords with China, but the political leadership is aware of the difficulties and limitations. In the Doklam tussle, it is New Delhi that held its peace and let China rant before the fracas died down.
It looks like that India, China and Japan are eyeing each other warily, and this is especially so in the cases of India and China, and Japan and China. At the same time, the Sino-Japanese economic ties continue to prosper (Japanese exports to China stand at $113 billion, next only to exports to the US at $130 billion; China’s exports to Japan: $129 billion compared to China’s exports to the US: $385 billion; to Hong Kong: $287 billion) as do India-China trade flows (China’s exports to India: $58.33 billion; Indian exports to China: $11.76 billion). The India-Japan trade relations are tepid compared to that between India and China. India’s exports to Japan amount to $ 4.66 billion, while imports from Japan stand at $ 9.85 billion. (All the figures are for 2016.)
Despite denials, India, China and Japan are potential rivals in Asia. India has the moral and political advantage in south-east Asia because ASEAN countries do not like Japan because of the bitter memories of Japanese militarism in the region. China by its sheer size intimidates the smaller countries. India has a friendly reputation, but it is not in a position either to extend a military umbrella like the US, nor can India provide the market for ASEAN though it is what is expected from New Delhi. India and China have been vying for influence in Africa, with China having an upper hand for the moment.
India because of its geographical proximity has a role to play in west Asia, an area which is overlooked in all discussions about 21st century being an Asian century for the simple reason that Iran, Turkey and Saudi Arabia, the big economies in the region, do not have the clout either in terms of their size or their ability to invest in the rest of the world. They are important in the strategic sense, but they do not have much to contribute by way of trade flows in terms of industrial and technological exports. So, the big picture of Asia will always tilt in favour of India, China and Japan because of the economic muscle of these three countries.
Modi, Xi and Abe are busy dealing with their home constituencies and the domestic challenges they pose. And they appear to be unchallenged leaders in their own countries. The nationalist rhetoric that these three leaders are compelled to use does not point to Asian domination in the rest of the world. The three can still hope to reach out with their goods and services, but they cannot command the political and military power to provide ballast to their economies the way European powers did in the first half of the 20th century, and the US in the second half. It would be a multi-polar world for much of the rest of the century, with India, China and Japan struggling to assert themselves on the world stage.

Economic Survey 2017-18 avoids telling lies, and does not tell the truth

Chief Economic Adviser Arvind Subramaniam emerges as a market economist who knows the devil in the details The first paragraph o...