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Government of India VS RBI

Government of India VS RBI

As a former officer of the Reserve Bank of India, I was shocked to read the recent remarks of Viral Acharya, Deputy Governor of the Reserve Bank of India. There are probably no parallels or precedents to such public remarks that tantamount to threatening the government of India by a ranking leader of the Bank.

The RBI, India’s Central Bank is a venerable institution that effuses dignity and reverence in the world of banking and finance, not only in India, but the world over. Its rather quaintly abstruse and almost self-effacing communication style – be it in its official communiqués or while interacting with the public at large – speaks of its tradition and élan that is generally matchless. This quiet dignity actually conveys so much more than what it actually says and adds an aura of enigma to it. For example, even a passing nod from the RBI Governor at a meeting of CEOs of banks can set tongues wagging.

Like most other Central banks, its presence is felt, rather than heard. Insiders are aware that RBI’s reticence and an unwillingness to hog the spotlight is also a calculated strategy to create space for itself.  It provides enough room to maneuver, change course if needed, and fight its battle with the government quietly and behind closed doors. That has only earned it respect and reverence.

Given this grand setting, it was upsetting to read the speech of Viral Acharya. It is very amateurish indeed and only betrays a lack of experience in a managing a large banking bureaucracy. He is certainly oblivious of the ethos and dignified traditions of a great institution that he represents. That the Deputy Governor chose to attack the central government in a public lecture has not only raised eyebrows, but also raised questions of why the government has not acted on this. His continuing in office has become untenable.

The RBI and the Government of India are like inseparable Siamese twins who have to work together in the interest of the country. Like wedded partners, they have enjoyed great moments of comradery as well as intense frictions in their relationship. Over the years, both have learnt to resolve or manage the differences amongst themselves without impacting the day to day operations or the public getting wind of it.

Having said that, let’s look at the controversy itself. It has been reported that the differences arose, among other issues, over the government’s proposal to transfer approximately Rs.3.6 lakh crores of reserves to itself. This is not unseemly given that the RBI is an agent and banker to the government. Differences over the use of the reserves are legitimate and must be discussed in closed rooms and not via the media. But in all such matters, if one is guided by past experience, the government view prevails.

For all practical purposes, the RBI has been and continues to be an extension of the Ministry of Finance, government of India. All past and current Governors and members of the Board are keenly aware that in any differences or tussles with Delhi, the Ministry of Finance has the last laugh. If, despite this understanding, Viral Acharya chose to discuss differences in public, it only points to issues extraneous to the functioning of the Bank.

The reason for RBI playing second fiddle to the governments stems from the RBI Act itself. The government appoints the Governor and has the power to sack him. It also has enormous powers to instruct the RBI directly or through its board to carry out its dikats.  In fact, there have been numerous instances of this.  One interesting anecdote that has done the rounds is that during bank nationalization in 1969, some in the RBI were said to have had their reservations. Apparently, Mrs. Gandhi’s office called the concerned senior officers directly and ordered them to prepare the necessary paperwork for the legislation. It was done quietly without any further ado.

After Independence, the government of India had firmly established a tradition of appointing IAS officers or other Central Services officers, particularly from the Ministry of Finance as Governors. This way, it ensured a de facto control of the Bank. Of course there have been a few notable exceptions – like Dr C.Rangarajan who was a former Deputy Governor.  Hence all this talk of the Bank’s independence is purely academic and largely a creation of the media to exacerbate the tensions. RBI for its part understands this and is fully reconciled to this reality.

It is the Congress governments that take the cake for running roughshod over the RBI. Many are only keenly aware of the tenuous relationship between P.Chidambaram, the former Finance Minister and Governors of RBI, particularly Dr.Subba Rao.

The current Chairman of the US Federal Reserve, Jerome Powell is also under pressure from the Trump administration. President Trump is on record fighting against the Fed. But the Chairman, given the august traditions of the Fed, has refused to enter into a public fracas. That does not mean he has given in to Trump’s pressure. On the contrary, he has continued with his interest rate regime in a dignified manner, never engaging the President in public.

As expected, the media too has had a role in overhyping the controversy. That the issue has been repeatedly opined upon by known Modi baiters comes as no surprise.  Also the timing  – a few months before the general election – seems too much of a coincidence. But what is surprising is the amount of support they have generated in the international press.

Viewed in this context, the Deputy Governor’s remarks reflect very poorly on the man. Firstly, the public airing of differences with the government is unprecedented. Secondly the reference to inherent threat to financial markets and hence the overall economy seems outlandish, to say the least. It must be made clear here that the markets will continue with minimal or almost no impact if the Governor and his team are sacked. The markets are dictated by the economic fundamentals and the overall regulatory regime that define the financial and banking infrastructure in India. These are already in place and will be hardly impacted by the individuals.  Lastly, the deputy Governor has displayed a complete lack of awareness of the ethos of the magnificent institution he represents. The markets and the executive leadership of banks in India now recognize this.

It is time for the Modi government to act decisively and bring in new blood into the RBI.

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Trade War – US Trumps China

Trade War – US Trumps China

As part of a worsening trade war, President Trump on Monday, September 17th, 2018 announced a slew of new tariffs on imports worth $200 billion from China. A 10% tariff will come into effect later this month which will then rise to 25% from January 2019. Not to be outdone, China too has responded with tariffs on $60 billion of US goods that includes meat, nuts, alcoholic drinks, chemicals, etc.

These announcements come in the midst of an already expanding trade and sanctions regime that has already engulfed the EU, Mexico, Canada, Iran and Turkey in its wake. But the response from most nations have been predictable. Fully understanding the potential threat to their vulnerable economies, Mexico and the EU quickly sued for peace.Canada too is in advanced negotiations to resolve outstanding issues. That leaves behind Iran and China in the crosswire.

This has sent shock waves in stock and currency markets all over the world. Many national currencies have tumbled, including India’s Rupee. But the collateral damage will be broader and deeper and continue to strike at the very root of “free trade” as we understand it today.

Several pundits have faulted Trump for his ‘aggression’ on China and have blamed him for what many see as the coming collapse of international trade. While one may disagree with the way Trump has executed the tariffs, he is absolutely right on taking on China. In fact the US has been very late in getting its act together on China.

A patient review of the events and facts may suggest the urgent need to hit the reset button on China. China is, by no means, a saint and has been violating every bilateral and multilateral agreement to further its trade. In fact many nations, particularly the smaller economies in the developing world have long complained of dumping of Chinese goods on their markets that led to the decimation of local businesses in these countries.

US too has long been wary of China stealing civilian as well as military intellectual property for several decades now. Further, China’s scant respect for international law – from its defiance of the International Court of Justice on the South China Sea judgement to coveting its neighbor’s land – is all well known.  If the international community has very little regard for China as a responsible world citizen, it has only itself to blame.

China may be believing it has arrived on the world stage as a super economy and a super power. That probably is the reason it decided to defy the US and impose counter tariffs. The ground reality, though, is that the US is still the largest economy with the most powerful military in the world.

Unlike China, the US has the power and means to impose sanctions and enforce it. The sanctions on Iran is a case in point where it has successfully prevented other nations from buying oil from it.

The Chinese on the other hand have a false sense of their international influence and authority. Their recalcitrance at the negotiating table earlier with the US has indeed surprised many. They seem to have played their hand wrong to their own detriment. The bottom line is that in the current trade war with the US, China will be alone as no other nation will openly defy the US to support them.

As regards the sustainability of the trade war, it is anybody’s guess as to how long this will last before a diplomatic resolution is negotiated. But given the asymmetry in trade – China exports over $200 billion compared to $80 billion of imports from the US – it is more vulnerable and will cave in sooner than later. China’s defiance is ill advised and amounts to a hara-kiri. Delay in arriving at a negotiated settlement will be a punishing setback for China and will undo decades of economic progress.

It must be mentioned here that international trade as we understand today is built on the twin pillars of economic pre-eminence and military might. These two pillars are then artfully packaged and deployed using sophisticated diplomacy to gain maximum commercial and economic advantage. Countries endowed with both emerge leaders and winners. That is the winning formula and all nations understand this very well. But for China to pretend it is on the same footing as the US is indeed churlish.

We must note here though, that history is a mute witness to the fact that when push comes to shove, the true intentions of nation states have emerged. The US and its allies have a track record of not hesitating to weaponize their trade relations and impose sanctions, which really is a proxy for their overwhelming military might, to ‘straighten’ things out.

Of course, this is not to suggest that the current crisis will transmogrify into open armed conflict. Far from it. But the consequences could be as devastating. However, in international relations, the dynamics and power equations keep changing depending upon the underlying economic fortunes of the country. The EU for example, given its weak fundamentals, may not be able to stand up to China. But the US, on the other hand, buoyed by a booming economy, has staying power.

For China, a prolonged face off with the US can have disastrous consequences at home. From unprecedented levels of unemployment to internal unrest and rebellion, anything in between may be a potential outcome.

The ongoing trade war between the US and its major trading partners has powerful lessons for India. India is caught between the US on one side and some of its own major trading partners – Russia, China and Iran – on the other. How India manages to successfully maneuver its way around these treacherous waters of international sanctions will determine – to a large extent- the survival and long term growth of India. But it certainly cannot adopt a confrontationist approach vis-a-vis the US. A collaborative approach will take it places, literally. Prime Minister Modi seems to be on the right track.

 
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Posted by on September 19, 2018 in China, Donald Trump, Economics, India, Trade

 

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The curious case of Justice Chelameswar

The curious case of Justice Chelameswar

The Supreme Court of India in its recent judgement on a public interest litigation (PIL)  filed by Shanti Bhushan (TOI July 7th 2018), has reiterated, for the third time in eight months that the Chief Justice of India (CJI) will have sole authority on allocating cases in the top court. The judgement although pertains to the internal administration of the apex Court, has huge implications, particularly with regards to the powers of the CJI. The judgement also firmly puts to rest the unseemly controversy raised by Justice Chelameswar and three other judges in their well-publicized press conference in January 2018.

It may be recalled that Mr. Chelameswar and three of his fellow judges had hurriedly convened a press conference in New Delhi to “inform the nation” about ‘happenings’ within the Supreme Court of India.  A startled nation watched the drama unfold, hoping to hear some radical steps to reform the judiciary or something to that effect.  Instead, the justices raised the banner of revolt. It turned out, much to the disappointment of millions of Indians, to be another case of washing dirty linen in public.

The anguish of the four judges was over the CJI’s powers to allocate cases to his subordinate judges. An eager opposition jumped onto this ‘rebellion’ that ultimately led to the tabling of the motion for the impeachment of the CJI in Parliament. That the motion was rightfully defeated is not the issue here. It certainly opened the doors to the ‘happenings’ within the Supreme Court. This power play or the quest for control over judge’s case load unabashedly played out in front of the nation, masquerading as concern for the ‘functioning’ of the highest judicial body of the land.

The press conference of Justice Chelameswar et al. or the failed move to impeach the Chief Justice cannot be a surprise if one looks into what is happenings within this high judicial body. That Justice Chelameswar later met with a communist leader and other opposition politicians and that the likes of Shanti Bhusan had filed a follow up PIL to wrest control of the muster from the CJI speaks volumes for itself.

That the said judges seem to be so oblivious of the humungous challenges and problems faced by the courts in the country is indeed hurting. It certainly shows that a section in the judiciary has consistently put personal career aspirations over and above the sacred function of delivering justice. No one can fault them for personal ambitions, but to cloak it as a concern for the judiciary does not lend them dignity at all.

In this context it is worth looking at the problems and challenges confounding the judiciary in India today. Take a look at the data presented by National Judicial Data Grid (NJDG). According to the NJDG the backlog of cases in the judicial system in India was approximately 3.3 crores including 43 lakh cases in High Courts and 58,000 cases in the Supreme Court. (Business Today, June 28 2018). In a related news report (The Pioneer 24th November 2017), it was pointed out that almost two thirds or 67% of the prisoners in Indian jails are under-trials. This is indeed shocking.

But amidst all the pendency, ironically, the Supreme Court, did find time to convene, in the middle of the night, to pass its considered views on the election outcome and the state Governor’s decision to give two weeks’ time for the BJP to prove its majority in the recently concluded elections in Karnataka. The apex court, it appears, can definitely find time and resources to hear cases of the mighty and powerful almost immediately while the average citizen may have to wait for years, if not decades to get justice.

I have not heard any statement or action plans to solve this heart rending problem of pending cases from Justice Chelameswar or his brother judges. Maybe I missed it. But their silence on the real problems of the judiciary is indeed deafening.

The huge backlog of cases also indirectly impacts the daily life as well as the long term economic well-being of the country. For example litigations relating to land acquisition delays new road and rail infrastructure. Putting corrupt politicians in jail too is impacted by these backlogs. It can thus be argued that the inefficiencies in the delivery of justice and other judicial services in India has contributed a great deal, albeit indirectly, to its economic backwardness.

Needless to say, the impact of the backlog of cases on India is huge and often not easily quantifiable and has the potential of even destroying the country’s democratic framework. Hence the need of the hour is a collective effort from all three branches of government – legislature, executive and the judiciary to quickly clear the backlog of cases. The government’s Digital India and other initiatives to use technology to enhance delivery of services is something the judiciary can learn from.

In this context it must be reminded that the Supreme Court is not just made up of its CJI and the other justices who sit on its benches. Any number eminent judges have occupied its high offices   as judges and Chief Justices. But as an institution, it is larger than all of them – the current and past incumbents put together. In fact it stands tall as the last and final beacon of hope in a democracy and India is no exception.

To trade its stature and importance for few minutes of national spotlight on television or media is nonetheless a sacrilege that most ordinary Indians cannot easily countenance. For them, the career fortunes of individual opportunistic judges is of no consequence when crores of cases are pending and every day unknown numbers of lives are lost or wither away in prisons just because justice could not delivered on time. If this is not rank opportunism, what else could be? Any amount of tall talk and no action will not cut ice in a resurgent India we are witnessing today. The writing on the wall is clear.

 
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Posted by on July 13, 2018 in India, Media

 

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Chidambaram Peddles False Narratives on Indian Economy

Chidambaram Peddles False Narratives on Indian Economy

Two news items in the recent past caught the attention of many. They deserve closer scrutiny since it provides good insights into a thriving business in India. It is indeed representative of a deep and well entrenched industry that has prospered by profligate peddling of false narratives in India.

The first was observations made by none other than the former Union Finance Minister P.Chidambaram. He led the economic fortunes of the country during his days in the Union Cabinet and arguably presided over an economy that tanked the fastest despite strong fundamentals. That he is in the news for investigations by concerned agencies and related court cases for alleged corruption is beyond the scope of this piece.

The erudite former Minister – a Harvard alumni – has opined that the country’s current economic conditions were akin to a vehicle with three punctured tires. He went on to paint a very dismal picture where almost everything about the economy was wrong. If one were to believe him, it would appear that most Indians are rotting in poverty and even unable to sell pakodas to make a living. As a politician in the opposition camp, this was not unexpected.

As expected, this statement was lapped up by the media and reported 24/7. Many pseudo experts and self-acclaimed economists joined the fray, pontificating on why all these imaginary ills can be attributed to none other than Prime Minister Modi himself. Mercifully, the false narratives did not carry on for more than a few days of print and airtime.

The second item was a glibly written piece that subtly casts doubt on the sustainability of the high growth rate that India is currently witnessing. It again questions PM Modi’s statements where he called for a double digit growth rates in GDP. Eminent economist Dr. Subramanian Swamy has also talked about India’s inherent capacity to grow at double digits. With a touch of finesse the article cites other pundits who are not sanguine about double digit growth for India. It is certainly reminiscent of the days when socialists lectured us on why India can only grow at a “Hindu rate” of growth of 3.5% or less. The article pompously advises that it would do India better to aim for growth rates of less than 8%.

India has seen too many of these arm chair pundits and ministers of bygone eras attempting to water down the unprecedented growth we are witnessing. The fact is that this is not well intentioned advice or political strategy, but churlish rant emanating from those quarters where the sun has begun to set. It is indeed incumbent on Mr. Chidambaram, in particular, to tell the nation the initiatives that he had undertaken to stimulate the economy that provided better results, if any. That would garner better Television Rating Points (TRP) than the story of a vehicle with three flat tires.

The point is to not question anybody’s freedom of expression or the right to have an opinion that is different or even counter intuitive. On the contrary, such cross winds fertilize the idea pool and the ultimate winner is the country. But this virus strain is different. At a minimum, balanced punditry is morally duty bound to signal and call out the existence of a thriving industry that peddles false narratives.

Many politicians, together with some sections of the media, have excelled in consummating this art of creating false narratives via obfuscations, distorted and skewed opinions that is ably supported by presenting selective data.

Now let’s look at another set of data that provides a counter or shall we say a neutral narrative. In a recent article published by World Economic Forum (published well before Mr. Chidambaram’s statement), a researcher using World Bank data has shown the performance of the Indian economy over the last fifty years. Please refer to chart.

WB1The author argues that India’s growth rate has been consistent and has accelerated over the long run.  The author further projects “…..  GDP growth to be 6.7 percent in 2017-18 and accelerate to 7.3 percent and 7.5 percent respectively in 2018-19 and 2019-20”. (Emphasis added). The observation of the author – derived from data presented in the chart – seems tenable. Since the readers themselves can visually verify the data, it irons out any potential for mischievous interpretation that may ensue when data over a shorter window is observed.

This chart belies both the news items referred to above. The Indian economic vehicle does not have three flat tires, as alleged by Chidambaram. On the contrary it seems to be kicking and doing very well, despite pessimistic projections. Secondly, if we look at the performance over the last fifty years, a high trajectory i.e. double digit GDP growth may well be within India’s reach.

That leads us to the well-known truism that most Indians are aware of. In the worst days of socialism that beggared India, many exasperated but wise Indians would remark that no government rules India, for India governs itself. For them, India was on auto pilot on “Ram Bharosa”, meaning India was governing itself on the will of Lord Ram. The chart referred to earlier just seems to reinforce this dictum on India’s potential, well known only to ordinary Indians, and apparently not to some Harvard educated elites. In short, India’s growth is unstoppable, albeit it can be slowed down by the likes of Chidambaram in the short to medium term.

But that should make reasonable Indians stop on their tracks and ponder. Fashionable opinionistas in India and their allies elsewhere, as is their wont, have repeatedly lamented that India has missed the bus. But has it really? Today, when data is democratized and can be accessed by anyone in a matter of few clicks, it is indeed easy to review and draw their own conclusions.

But India has always been a paradise for peddling false narratives – be it economic growth, religious freedom, Aryan invasion theory or even the latest fad – intolerance. Some wisecrack puts out a skewed misinterpretation or blatant falsehood and this gets lapped up by the media like hungry wolves and then repeated ad nauseam. Finally, this becomes the established narrative – completely obliterating the underlying facts.

That has been the established and well tested strategy of the narrative peddlers who sell their views for a price, for a motive, in full disregard for India. And many of them happen to be politicians and opinion makers who presume they preside over the economic future of India.

The necessary and sufficient condition for the false narrative industry to thrive is a grossly ill-informed society. They had a free run for so many decades, but not anymore. Digital India has bought internet to every home and now information is free and the biased are being called out. This is the new ground reality politicians in India have to contend with. False narratives, be it from the government, the opposition political parties or for that matter from any quarter, will now be easily spotted and called out.

 
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Posted by on June 30, 2018 in Economics, India, Indian Economy, Media, Modi

 

Political Impact of Modi’s Transformation

Political Impact of Modi’s Transformation

In two earlier  pieces,  Modi’s transformation of India using the twin pillars – choosing the right policies and then executing them well – was examined in detail. The impact on the ground is for all to see. It is in this context that news of the plot to assassinate Modi by extremists groups has come as a shocker. Undoubtedly it is a serious issue and reports have indicated that the police as well as the intelligence agencies are looking into this.

The plot itself was not unexpected given that two former Indian Prime Ministers have been assassinated. But it comes as a living reminder that country’s leadership continues to face threats from forces inimical to India – both within and outside the country. More importantly, this is symptomatic of the deeper churn in the political ecosystem ever since Modi became Prime Minister. It is worth pointing out here that many opposition parties, particularly the fringe elements, have been drumming up so much hatred and spewing venom that may it have directly or indirectly contributed to such plots. But that is for the police to determine.

Modi’s focus on “development”, besides unleashing the economy, has enabled him to wrest control of the political narrative and lay down a new set of agenda for India. Muslim appeasement has lost its sheen – particularly after the banning of “triple talak” thus endearing himself to millions of Muslim women. Also the absence of targeted attacks on minorities that many Cassandra prophesied has only aided the shifting of the narrative. In many ways, much of the angst of these entrenched anti-national elements can be sourced to their complete disappointment in the successes of the ruling establishment.

This shift in narrative has immense consequences. India is witnessing a slow migration from ghetto politics – a perverted brand of politics of pandering to minorities at the expense of the majority that has only fissured India for seven decades – to one dominated by performance, punctuated by key statistics and data on the economy. The ground reality is that it is sounding the death knell for many political careers and parties. A careful examination of changes occurring in the political campaigns seem to suggest the movement in that direction.

The Congress party, India’ largest opposition party in terms of organization and resources, has been forced out of office all states save one.  India’s very own grand old party with a long history is today reduced to a mere rump of their erstwhile past. The massive mandate in favor of Modi has created severe long term damages to the party. Their banding together with all and sundry – disparate and desperate parties has only degraded India’s opposition polity into a chaotic agglutination for whom political ideology has become nothing more than a disguise. This short sighted calculus to gain political power at any cost has been their undoing.

Their responses to the government’s “development first” agenda have been bizarre – from a mix of standard divide and rule gimmickry to engineering violent protests to create a false aura of deteriorating law and order situation. They talked about unending oppression of Dalits, repression of Muslims, denial of equal rights to women, refusal to share river water sources between states, linguistic chauvinism, and north versus south India and on and on. But all these time tested strategies seem to have fallen flat on their faces and only succeeded in leading them further into dark political wilderness. The people seem to have called the bluff.

Aiding the Prime Minister in building his massive support base, albeit unintended, is the almost complete lack of thought leadership in the opposition camp. Their only answer to his development programs is a dysfunctional opposition to anything and everything he does. They seem to have mistaken rabid Modi-baiting for strategy. Engineering street protests and attacks on Dalits and minorities is now misconstrued as political stagecraft. So rapid is the erosion of their support base that today Congress is not even confident of being elected in their “safest” constituencies despite all allurements to the voters.

This truth is that Modi’s mindshare of Indians is real. He has captivated different demographic segments by providing different programs that appeal to them. With his powerful engagement on social media he seems to have captured the imagination of the younger segments. They see the fruits of his initiatives – from sleek railway coaches to soil data cards for farmers – and have massively backed him.

The expectations of the people on delivery of developmental agenda is high and there is no going back. In every village people are talking excitedly about electrification or the introduction of new railway lines or the spanking new highway that snakes though their town. They have now seen and experienced for themselves how things can change fast. The most important learning for the people is that these massive public investments and welfare programs, if executed well under watchful eyes can swiftly impact their economic fortunes. That is the essence of Modi’s economic transformation.

The fall out on the political ecosystem is that many political careers will be ruined and we may never again see the faces of many politicians. Fringe elements, arguably the loudest anti-Modi voices and the most virulent anti-national forces, have been corralled and their sources of funds have been shut down, thanks to demonetization. For others, the writing on the wall is clear. Perform your duties as expected or exit the political life.

The focus on governance and development may have found a long awaited cure for anti-incumbency that ailed India for decades.  This does not mean that 2019 election will be a cake walk for the BJP or Modi himself. There is lot of unfinished work. More importantly, he has to step up his publicity machinery to bring to the attention of every Indian in every village what has been achieved in these four years.

Good governance and data on economy may provide fuel to debates and score brownie points on the television talk shows and may even win thunderous applause. But winning elections is another matter altogether. The 2018 elections in Karnataka shows that BJP has much work to do. But at least one thing is clear. The days of perverted appeasement politics is definitely over and seems to have had a quiet burial.

 

Modi Lifts Millions Out of Poverty

Modi Lifts Millions Out of Poverty

In an earlier piece the ground work laid by Modi in his first four years in office was analyzed. His important achievement was the creation of a policy environment that facilitated an accelerated growth. As pointed out the implications for the country are many. This piece will explore the ripple effects of the rapid transformation on society

One big game changer that Modi has spotted very early has been the widespread use of the mobile phone in India. With over 118,34,08,000 mobile phones, India has a massive penetration of over 91% (Wikipedia), bulk of the users being rural and urban poor.

This large user base presented a great opportunity to deliver government services to the people via the mobile phone. In fact it Modi has used the mobile phone as a development accelerator. Called the Digital India initiative, the e-governance architecture provides swift and intermediary-fee delivery of services as never seen before.MSME1

Modi’s Digital India is probably the biggest platform for delivery of government services anywhere in the world. Fully leveraging India’s prowess in information technology, this has been created in record time. The bandwagon service platform enables citizens to track status of their application to government, request information, seek marketing information on agricultural produce, weather information, cashless transaction using digital wallets, file income taxes electronically, access free CBSE textbooks, review digital land records, view data from the Geo-Informatics Center and an almost endless list of services line up.

But how has the sweeping changes brought in by Modi impacting India? Have they created job growth? The political opponents of Modi have charged that despite these changes, there is no impact on employment. While concerns on employment are valid, the truth is that the changes have bought a large number of jobs particularly in the informal sector.

It must be noted here that Indian economy is a complex mix of formal and informal sectors. This informal sector, like the small business sector in the US, is a key pillar of the economy. It employs over 120 million people while the formal sector employs only 12.5 million (mudra.org.in). It is one of the largest disaggregated business ecosystems in the world – shopkeepers, vegetable vendors, repair shops, artisans, street vendors and many more – sustaining around 50 crore lives.

According to the National Sample Survey Organization (NSSO), as of 2013, micro, small and medium enterprises (MSME) totaled 6 crore business units mostly individual proprietorship. Most of these are owned by weaker section of society particularly from SC/ST or Other Backward Classes.

Since they are not organized, granular data is hard to come by. This is has posed a great challenge in assessing the true benefits particularly in generation of employment. But a fair assessment of the impact on employment can be deduced from the data available with the Mudra Bank. Since its inception three years ago, the bank has disbursed loans to more than 12 crore small entrepreneurs which is more than the total population of Italy and France (narendramodi.in). 50% of its borrowers were from SC/ST and over 75% were women.

Assuming that only 50% of the borrowers employed one additional help, Mudra bank would still have generated a minimum of 6 crore direct jobs. Further, even if only 25% of the borrowers were successful in developing their businesses, then at least 3 crore people would have enjoyed a higher disposable income. This is a very conservative estimate and data on the ground may indicate an even better scenario. More importantly, all this was in the weakest sections of society in rural as well as urban areas. The gains in employments from Mudra bank are substantial.

Modi’s transformation exercise has greatly impacted Indian society. Series of small but important changes in the way public consumes government services have generated optimism and has boosted the self-esteem of the people. It is now common place to hear senior citizens in temples, marriage get-togethers or other social occasions to wax eloquently about the beneficial changes Modi has bought about in the country.

The senior-citizen demographic segment in particular has lived through hell – having to pay bribes, suffering untold delays in everything, being ignored or harassed for seeking what is legitimately due to them. Many have not forgotten how millions of retired government and public sector employees have been forced to pay bribes just to get the legitimate pensions or retirement dues.  For them Modi has given a new life experience.

The impact on women is profound. For instance a housewife is now able to sell her cooked food to local area residents by soliciting orders via SMS and accept digital payments. She can borrow money at subsidized rates from banks or lending institutions that are refinanced by Mudra Bank. All this without paying a rupee in bribe to intermediaries. Such anecdotes abound in almost every town and village in India today. Not to forget, this was not even in the realms of imagination for many Indians even a few years back.

But bigger questions loom large for the BJP. The kick starting of the economy has started a new social dynamics in the county. It is narrowing, albeit at a slow pace, income disparities at the lowest levels in the economy. But how will all this impact the 2019 election?  Will it boost the prospects of BJP? Why did it not influence Karnataka elections or the recent by-polls? Is BJP’s ‘development first’ agenda waning? Political observers are not in agreement and opinions seems to vary widely, largely depending on whom you talk to.

The fact is that the number of reforms is unprecedented and the impact in the ground, as explained above is lifting millions out of poverty. But these poor millions, by themselves, may not be able to decisively sway the elections.  On the other hand it is also true that sections of supporters feel let down by the BJP. From the delay in building Ram Mandir to corrupt politicians of UPA not facing the law, the anger is real.

But this anger needs to be unpacked to have a better understanding. The dissatisfaction largely stems from impatience due to non fulfilment of expectations. Here again, these are the classic problems seen in a large pluralistic society where the expectations of different sections compete for attention at the same time and often are not complementary. Modi’s government has impacted them differently and hence the sense of unfulfilled expectations.

In a complex country like in India, poverty alleviation at the lowest level is rightfully the urgent priority and Modi has devoted a lot of time for it. As regards booking the corrupt, the delay is inexplicable. The only plausible explanation is that Modi does not want to create a martyr out of these corrupt leaders who left alone have no chance of winning.

For the millions at the lowest levels of society, Modi is a godsend. So too for millions of middle class Indians, particularly the under 35 segment. For them the actions have matched the promises. This is rarity in Indian politics.

 
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Posted by on June 4, 2018 in Economics, India, Indian Economy, Modi

 

INDIA’S TRANSFORMATION UNDER MODI – IMPLICATIONS

indianeconomy2The growth in the Indian economy has attracted a lot of attention. India has emerged as the fasted growing large economy, pipping China. It is expected to clock a GDP growth rate higher than 7.2% in 2018. Many international agencies that monitor key economies around the world have been sanguine in their projections on India.

A recent study published by UK based Center for Economic and Business Research (CEBR) states that India’s consistent GDP growth rate will push it to prominence in 2018. It has forecast that India will join the elite group of the top five largest economies of the world. This is a full year ahead of projections by International Monetary Fund (IMF) that India will make it to the top five in 2019.

India’s rise in global prominence has not come easy. In the last four years, Prime Minister Modi’s government has put in an unbelievable number of policy reforms and public investments in hundreds of projects that have borne fruit. This smorgasbord of reforms and investments have deeply impacted key sectors of agriculture, manufacturing, and services like never before. The gamut of initiatives – many of which have longer gestation periods – will continue to deliver results over an extended time horizon

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A dispassionate analysis throws up three key pillars that have provided the bulwark for the emergence of the economy.  Firstly, Prime Minister Modi, shedding ideological baggage, has incorporated best practices in economic management that are pragmatic and more importantly, well suited for the country. This is indeed refreshing, since for many decades India was hamstrung by ill-advised ideological paradigms that only resulted in poor growth rates and endemic poverty.

Secondly and more importantly, we are witness to an unparalleled excellence in executing these economic reforms and policies. Modi’s personal leadership qualities – acquired mostly as Chief Minister of Gujarat where he was virtually baptized by fire – have played an important role. The recent inauguration (May 2018) of the smart Eastern Peripheral Expressway (EPE) is but one example of this mastery over execution. Built at a cost of Rs.11,000 crore in Delhi, this 135 KM long solar power lit expressway was completed in 18 months.

Thirdly, and most notably, the government has ensured that, at least at the political level, there is no corruption, pilferage or fraud. These have been the core secrets of the swift economic transformation we see today. It is well known that India’s track record in delivering government services, particularly welfare benefits to the poor has been dismal. Former Prime Minister Rajiv Gandhi is on record saying that for every rupee the government spent on welfare only 15% actually reached the beneficiary.

But Modi had stopped all that by directly transferring benefits to beneficiary’s bank account. According to data published by the government, welfare benefits of Rs.3,65,996 crores were directly transferred to beneficiaries’ accounts in the last four years (www.narendamodi.in). This is an example of Modi choosing the appropriate service delivery vehicle and executing it well in a given time fame.

Modi’s developmental paradigm and governance strategy are built around these three pillars. Hence his schemes and initiatives, just to name a few –   GST, Indian Bankruptcy Code (IBC), recapitalization of public sector banks, unprecedented investments in national highways and railways, 100% electrification, transfer of welfare benefits directly to the beneficiaries’ bank accounts –  are runaway successes.

What is even more striking is the fact that the government has used existing laws, existing civil and administrative machinery, existing staff and officers to execute its vast number of projects. The same machinery has in many cases achieved the project objectives ahead of schedule without cost overruns.

Like all previous governments, Modi too had the low risk option of choosing reforms on a smaller scale that do not tend to rock the boat. But these changes would have yielded only incremental results or benefits that would have continued to keep India hostage to a pernicious low growth cycle, depriving huge sections of society a decent livelihood. But Modi apparently has taken a calculated risk and has instead, boldly opted to choose the transformation route, a high risk option, to achieve big results in as diverse areas as possible. The gamble, as seen from the optimistic projections by international institutions, seems to have paid off.

Many compare Modi’s transformation exercise to the reforms of 1991 initiated by the then Prime Minister Narasimha Rao. Rao’s reforms were no doubt extremely critical for India then, but were more in the nature of a rescue mission. They were focused on deregulation and attracting foreign direct investments to shore up dangerously low levels of forex reserves. They were incremental and definitely on a smaller scale in comparison.

As already pointed out, Modi’s reforms are transformational. Further his efforts must be seen as part of a master plan that includes securing India from internal and external threats as well as forging bilateral ties with various countries around the world to deepen India’s trade and commerce. The truth is that both Rao and Modi have succeeded in untethering the native economic sinews of the country.

Despite the din, distorted and mostly negative reporting in the media, Modi’s developmental agenda has the backing of large sections of society. For them the economic resurgence passes the smell test, at least anecdotally. For instance, in high growth states like Gujarat and Tamil Nadu, there is a noticeable absence of beggars on the streets or on railway platforms. Long gone are the days when people could not afford footwear or wore torn clothes. The so called ‘trickle down’ effect which was a just a dribble for several decades, now seems to be drenching vast sections of poor people. Of course this is not to gainsay the fact that poverty continues to pervade vast sections of society in many states.

The economic survey for 2018 has highlighted the strengths of economy. But it has also warned of potential risks and threats to the economy, both internal and external that need to be carefully watched. However, the good news is that key statistics and relevant data point to continued robust growth in the economy. Modi’s biggest achievement seems to be the setting up of right the ecosystem via a conducive policy environment, infrastructure building and massive public investments that has since unleashed the economy.

The silent changes that are sweeping across the country– mostly at the lowest levels of the economy – are creating huge impact on the very fabric of India – economically, politically and socially. The enthusiasm and expectations of the people – particularly the under 35 demographic segment that forms over 60% of India – seem be scaling up.

The clamor for corruption-free and swift delivery of government services – be it provision of electricity, sanitation, public health services or any service for that matter – is ratcheting up. While citizen experience is positive, this may not be a welcome change for the political ecosystem in India.

Modi’s iron will and mastery of execution is unmatched across the whole political spectrum in India today. He has given India a new mantra to the political class- perform or perish. He has set the bar for performance high enough that many in the current political scene may not be able to achieve. This probably explains the collective hatred seen for Modi among his political opponents and their proxies. But the impact of Modi’s transformations will continue to reverberate for years to come.

 

 
 
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