Do it yourself

Trust your people In past few years a multiple cracks have surfaced on Indian socio-economic canvass; especially in terms of governance, capital, infrastructure, policy, business & investors’ confidence, regulatory framework etc, leading to plateau in the growth trajectory. Consequently, the investors no longer seem totally enamored with the still high growth potential of Indian economy highlighted by the immense investment opportunities in incapacitating infrastructure deficit, enticing demographics, burgeoning middle class, low consumption level, scope for rapid urbanization, etc. It is not uncommon to find people asserting that the growth seen during 2003-2008 was an exception, in the long term trend of 4-5% growth rate. Historically, high fiscal deficit, trade deficits and infrastructure (especially energy) deficit have been recurrently swaying the investors’ sentiment. However, recently governance and trust deficits have attracted more attention. In our view...

Focus on strengths Prima facie it appears that the Nehruvian model of industry led growth has largely failed in evolving a strong structural base for the Indian economy in past more than 6 decades. Consequently, we still continue to be an economy largely dependent on labor & resource arbitrage and trading. We have failed in making significant progress in the areas such as technological advancement, productivity gains, innovation and localization. In our view, we have focused too much on our weaknesses and tried hard to overcome by importing technology, energy, intellectual property, capital and consumption patterns. We have also failed in exploiting our strengths and allowed outflow of precious resources both natural and human. Current account deficit, which has emerged as one of the key concerns in past 5-6 years, is a direct consequence of our failure to make necessary adjustments to the growth model adopted post independence. We suggest, the government should work...

Enable the youth The young demography is famously the biggest strength of Indian economy at this point in time. However, if not managed properly this may as well prove to be the nemesis of the fabled India story, in our view. The pertinent fact is that Indian growth in past decade or so has miserably failed in creation of adequate productive jobs for the burgeoning workforce of the country. MNREGA has helped to some extent, but it is bound by fiscal constraints, leakages and lower productivity. Disguised and underemployment also continue to impact the productivity and earnings potential. We have been highlighting that the vast reservoir of youth energy on which Indian economy is sitting presently, could potentially explode if not channelized appropriately. It is therefore extremely critical to evolve an integrated youth policy that include mission scale programs to educate and skill the youth, inculcate enterprise skills in them from early stages, enable them to engage i...

20 point program Indian economy is characterized by rising incidence of unemployment and disguised and underemployment; higher than acceptable socio-economic inequality; strong and rising intellectual and skill inequality; gradually bridging but still high regional imbalances; low productivity especially in agri sector, oversized government with extremely low level of decentralization; and seriously incapacitating supply constraints especially in energy, social and physical infrastructure terms. The young demography provides high potential in terms of growing workforce and consumption demand. But due to low skill level, lack of adequate employment opportunity, financial and social exclusion, and disillusionment of youth due to political indifference and poor governance standards the potential remains under-exploited. We suggest the following 20 point program for overcoming many of these problems and exploit the tremendous potential of Indian economy that has been recognize...

Opium to housing – the journey of China In early 19th century the addiction of tens of millions of Chinese to opium was one of the biggest disasters ever to hit China, eventually leading to what is popularly known as the “century of humiliation”. A recent Bloomberg report suggests that new disaster which could be of similar magnitude might be developing in China. It refers to it as “housing slavery”. The gist of the report is as follows: The Chinese housing bubble is now the biggest it has ever been; according to some it is even bigger on a relative basis compared to the US housing bubble (either in 2007 or 2013). The Chinese housing bubble is now the biggest it has ever been; according to some it is even bigger on a relative basis compared to the US housing bubble (either in 2007 or 2013). The shift to private home ownership stems from reforms started in 1998, when then Premier Zhu Rongji privatized state- owned housing provided at low rents to urbanites, transferri...

Hopes, greed, and fear Our recent interactions with investors and businesspersons have convinced us that the though the greed is staging a comeback with rising hopes, the fear still continues to be the dominating factor in influencing the investment decisions. We conclude that the following three may be primary sources of high hopes: (a)    The slowing growth rising stress in the financial system prompt RBI for an aggressive monetary easing in second half of 2013. Easing inflation, government’s resolve to return to sustainable fiscal path should support RBI’s easing decision. (b)    The liquidity tightness seen since past few quarters should ease (i) as the government starts spending in new fiscal year; (ii) 9 state assemblies going for election followed by the general election due May 2014 should also prompt higher government spending; (iii) lower inflation and direct cash transfer scheme will leave more money in the hands of consumers to do some di...

Fringe benefits Three significant reforms may be taking shape silently in India, though the government never intended to make these reforms and investors never asked for it, at least not publically. Firstly, the Competition Commission of India (CCI) is reportedly issuing a notice to three state-owned oil marketing companies (OMCs) on a probe on whether they form a cartel to fix petrol prices. The commission is also looking at the coal and fertilizer sectors, where government-owned companies dominate the market. This notice could potentially unleash a debate on the corporate governance and accountability of public sector monopolies towards the minority shareholders in particular and public in general. The public sector corporations can thus be made more accountable to parliament and public and saved from serving political agenda of the ruling parties. Little farfetched but not unfathomable – a CCI stricture on pricing policies of PSU may influence the whole subsidy paradi...

TINA should not determine the fate of 1.25bn people Assuming media, including social media, reflects the popular perceptions, we find the country divided in three camps over Narendra Modi. One camp comprises of people who find him the best cure to the policy paralysis and therefore much of the problems afflicting the country at this point in time. The other camp rejects him as a regional phenomenon not of much relevance at national level. The third camp finds him the dark side of the democracy to be rejected as a whole. In our view, this debate is mostly misdirected, suffers from strong prejudices & elements of romanticism, reflects a conspicuous disconnect between so called intelligentsia and ground realties, and conveniently ignores the political history of past three decades. We feel we need to debate the issue without prejudice, in light of post emergency political history and from the following three different perspectives. 1.      Does the ...

High hopes from low expectations! From the representations of various industry associations, trade associations and business chambers, it is clear that in his attempt to manage expectations from budget, the finance minister has actually raised the hopes to very high level. While the general refrain is that the expectations from the budget this time are low given the fiscal challenges; we find the hopes running high. It is general anticipation that he will present a tight fiscal budget – cutting on plan and non-planned expenditure substantially. Aggressive disinvestment target and lower fuel subsidy will allow the finance minister to adhere to the 5.3% FY13 and 4.8% FY14 fiscal deficit target. It is also widely hoped that he will announce substantive measures to motivate equity investments by household investors. The incentives are expected to include tax incentives like raising limit under section 80C and tax free infra bonds. Ambitious disinvestment target also warrants g...