Vijay Kumar Gaba: Modi

Showing posts with label Modi. Show all posts

Thursday, February 29, 2024

Cognitive dissonance- 3

Continuing from yesterday.

If the job crisis is so severe, why is the incumbent government so popular, especially among the youth?

The incumbent prime minister, reportedly, enjoys the highest rating amongst the popular leaders of the world. In particular, he is very popular amongst the youth and women in India.

India faces one of the worst youth unemployment rates globally. Indian homemakers are facing serious challenges in managing their household budgets due to inflation. According to the World Bank, the youth unemployment rate in India could be comparable to war-torn economies like Syria, Yemen, Lebanon etc. The unemployment rate and household inflation have worsened or failed to improve in the past 10 years.

The question thus arises, why is the incumbent government still popular amongst youth and women?

I have discussed this aspect with numerous common people, like myself, nationwide over the past couple of years. My conclusion is as follows:

(a) Contrary to common perception, the incumbent government is not very popular with the people. It is the Prime Minister who is popular, not his team or the administration. A majority of people defend the prime minister, arguing that he sincerely wants to make life of the people better, but the administration is corrupt and not supporting him fully.

(b) A majority of the prime minister’s supporters believe that he is a divine incarnation and he could only salvage them from their misery and distress.

(c) The popularity of the incumbent government and the prime minister is significantly higher in West and North India, as compared to South and East India. He is also relatively less popular in the states where there are strong local leaders.

(d) The lower middle-class youth is increasingly becoming kind of masochist. They appear to be comfortable with their pain and misery, so long as their neighbors are more miserable and are in deeper pain.

(e) Above all, the welfare schemes of the government have benefitted poor households. The campaign to promote these schemes is very strong and effective, strengthening the connection between beneficiaries and the prime Minister.

(f) Overindulgence with social media is making youth delusional.

(g) Partisan reporting by electronic media has affected the judgment of gullible households to a material extent.

(h) The lack of a visible opposition leader with a pan-India appeal, and the lack of any competition from within the BJP to the prime minister’s supremacy, are helping the prime

Tuesday, February 13, 2024

My takeaway from Putin’s interview

Recently, an interview (watch here or read here) with Russian President Vladimir Putin has been trending in the media worldwide. In this two-hour seventeen minute long interview, President Putin touched upon many important issues concerning global economics and geopolitics. Experts from the world over are analyzing the interview from multiple angles, e.g., strategic, political, geopolitics, economics, etc. Most analysis I have come across is deeply biased. The starting point of most comments is the trustworthiness of President Putin. Most Western analysts seem to be rejecting Putin’s assertions as mere propaganda; while the analysts from Eastern and Southern analysts are using the contents of the interview to justify their opinions about the US agencies (deep state) and NATO.

In India, pro-establishment media and experts have mostly refrained from commenting on the interview; whereas the critics of the establishment have used this opportunity to emphasize that President Putin has answered many tough questions while Prime Minister Modi chooses not to answer media questions. I have not seen much discussion in Indian media on the assertions made by President Putin.

As a tiny fish in the pond, I am incapable of making any intelligent comments on matters of global or even national importance. Nonetheless, I found the following three things in the interview that interested me as a small investor.

· “China's economy has become the first economy in the world in purchasing power parity; in terms of volume, it overtook the US a long time ago. The USA comes second, then India - one and a half billion people, and then Japan, with Russia in the fifth place.”

This is the only mention of India in this 2:17:19 hrs. interview. Indonesia got much more prominent mentions. China was repeatedly mentioned as a formidable global power. The recent trade trends are suggesting that near-shoring, friend-shoring, and China-proxy-shoring are emerging as more popular trends. Indonesia, Mexico, Vietnam, etc. are emerging as much stronger gainers of the China+1 strategy as compared to India.

· President Putin made it clear, in no uncertain terms, that the era of global peace that prevailed particularly in the post-Cold War period is mostly over. We are entering an era of mutual mistrust; frequent disruptions; persistent and potent threats of a larger war; and redistribution of global power.

This implies that (i) defense spending will increase for most nations; (ii) given the current state of the stretched fiscal position of most developed nations, the collateral damage of higher defense spending will be humanitarian aid; (iii) Rising mistrust may also result in tightly closed borders, adversely impacting immigration; (iv) Volatility in markets will rise materially; and (v) USD will face persistent pressures.

It appears too early for India to claim self-reliance in defense production. It is also early to anticipate that India could become the fulcrum of any major global alliance in the next few years. This means we could face serious trade and foreign policy challenges soon. The recent performance of the government in this regard is not very inspiring.

· President Putin hinted that Artificial Intelligence (AI) needs to be regulated and there must be a global understanding on this subject.

Failure to reach a wider understanding may pose a similar (if not greater) risk to the global peace and stability as the stockpile of nuclear weapons did in 20^th century. Misuse of AI could be devastating. The US and China are miles ahead of India in the development and deployment of AI in most areas, especially defense technology.

The implications for my investment strategy are as follows:

· The sentiment of nationalism apart, for small investors like me it may not make much sense to place significant bets on the China+1 theme. To global investors markets like Indonesia and Mexico may offer better opportunities.

· We should embrace higher volatility. The post global financial crisis (GFC) era of low volatility may be over in the next few quarters.

· Overstretched fiscal positions and the specter of war may keep rates elevated for longer than presently anticipated, even if China accelerates the export of deflation. The cost of global capital could rise for Indian entrepreneurs.

· It may not be a great idea to buy USD-denominated assets for small investors.

· Defense production and AI will remain relevant themes for many years. But buying these at any price may not be a good idea. (more on this tomorrow.

Friday, February 9, 2024

A summer of discontent

Earlier this week, Prime Minister Narendra Modi claimed that the incumbent ruling dispensation (NDA) shall return to power in 100 days with a much larger majority. The popular political debate is now getting narrowed to the question “whether NDA will return to power with 300/545 seats or 400/545 seats”.

On the other side of the globe, the political debate in the US is also fast reaching the point where the most relevant question would be “Who will Donald trump defeat in the November presidential elections?”

The ever-forward-looking financial markets are not oblivious to these more likely political outcomes. It is therefore safe to assume that the current prices have factored in the election victories of Modi and Trump. Thus, from a political viewpoint, one should not anticipate a significant upside to the financial markets. An unexpected election outcome may though result in a material downside.

In the latest episode of Greed & Fear, Christopher Wood (of Jefferies), said about the US markets, “The stock market is priced for an idealized soft landing while the money markets are priced for a degree of monetary easing which only seems likely in the event of a recession. The fed fund futures are now discounting 144bps of rate cuts this year. On the US stock market, the Nasdaq 100 is now trading at 24.4x one-year forward earnings and the Russell 2000 is trading at 22.6x, compared with 19.6x for the S&P500, according to Bloomberg.”

The summer in the US is therefore going to be full of discontent. A soft landing (further earnings downgrades, slower consumption, and rising financial stress) may limit the upside in stocks while the Fed pushing the rate cut beyond May’24 may cause restlessness in the bond markets.

Back in India, the chances of any further re-rating of equities are getting slim.

· Private consumption slowdown is now well accepted. The interim budget has made it clear that even public consumption is not likely to improve anytime soon.

· The budgetary allocation for capital expenditure in the sunrise sectors Defense, Railways, Utilities, etc. has seen meager growth in FY25BE. The valuations of the stocks of these sectors may not see any further PER re-rating. The returns from here logically should be similar to the earnings growth in these businesses. Any disappointment in execution may however see a sharp sell-off.

· Decelerating global growth shall keep export growth under check. The downward shift in growth trajectories of the US and China could also spill over to India through several transmission channels, such as trade in goods and services, commodity prices, and investment.

· RBI has also made it clear that going forward it is not an all-blue-sky scenario for the Indian economy this summer. The risks to inflation and growth are at best balanced. The bond markets may not be fully pricing in the downside risks.

I do not want to sound like a party pooper. Nonetheless, I am happy to use this spring for repairing my roof, servicing my air-conditioner, and oiling my vehicle. Just in case, there is a cloud burst, sudden heat wave, or flood warnings needing immediate re-location.

Wednesday, October 18, 2023

Policy paralysis – UPA vs NDA-2

Continuing from yesterday…(see here)

In the enterprise world, new ideas or innovations are usually valued much higher than the ability to execute such ideas. I believe for a successful enterprise both ideation as well as execution are equally important. The question of execution would not arise if there is no idea to execute. Similarly, an idea, howsoever innovative and brilliant it is, would remain just a thought or piece of paper unless it is executed well. Nonetheless, since the idea is the starting point of any enterprise, the innovator deserves to get a relatively higher valuation.

Taking this further, in the realm of politics and governance, the two key components of good governance are:

(i) Conceiving, formulating, and instituting policies that would ensure inequitable, sustainable, and accelerated socio-economic development and growth.

(ii) Execution of instituted policies through a set of structured programs, efficient delivery modules, and effective & prompt review and corrective mechanisms.

I believe that the performance of any government must be evaluated on these two parameters.

As I mentioned yesterday (see here), I find that the previous UPA government under the leadership of Dr. Manmohan Singh scored excellently on the issue of conceiving, formulating, and instituting policies that would aid in achieving accelerated, sustainable, and equitable growth. A high rate of GDP growth, especially in light of the global financial crisis, and the challenges of running a government with the support of a large coalition comprising parties with divergent ideologies and agenda underlines the efficiency of execution. The policies not only helped the Indian economy navigate safely through the global financial crisis and a subsequent current account crisis; but also helped bring a record number of people out of poverty.

Now, if we were to assess the performance of the incumbent government under the leadership of Prime Minister Narendra Modi on these two parameters, I strongly believe that the current government has performed very well on the execution front. This government has definitely—

(i) Executed policies instituted by the preceding government like MNREGA, UIDAI, RTE, Food Security, DBT, financial inclusion, FDI in retail trade, infrastructure development etc. rather efficiently;

(ii) Devised good programs and delivery modules for the policies formulated during the last years of the UPA government like digitization payments, GST, Direct Tax Code, implementation of 14^th finance commission recommendations, etc.

(iii) Augmented many policies like Unique identity and digital payments brilliantly to exploit maximum benefits out of these policies.

This strong execution helped the Indian economy navigate through the Covid-19 pandemic and subsequent global slowdown very well. Despite all challenges, India remains the fastest-growing major economy in the world. The programs like Unified Payment Interface (UPI) have become extremely popular globally. Road network development is happening at an accelerated pace. Many large infrastructure projects that were stuck due to a variety of reasons are getting completed.

However, insofar as conceiving new ideas and policies is concerned the performance of the incumbent government is ordinary. In the past nine years hardly any new idea has been conceived and/or converted into policy and programs.

NITI Aayog – the Think Tank

One of the earliest policy decisions taken by Prime Minister Narendra Modi led government at the center was to disband the planning commission and constitute a new Commission to provide directional and policy inputs to the government.

The commission, named NITI Aayog, was formed through a resolution of the Union Cabinet on 1 January 2015. NITI Aayog is “the premier policy think tank of the Government of India, providing directional and policy inputs. Apart from designing long-term policies and programmes for the Government of India, NITI Aayog also provides relevant strategic and technical advice to the Centre, States, and Union Territories. NITI Aayog acts as the quintessential platform for the Government of India to bring States to act together in national interest and thereby foster cooperative federalism.”

A careful reading of the latest Annual Report (2022-23v) of the NITI Aayog suggests that the Aayog has focused more on the review and assessment function and less on thinking and policymaking function.

As per the report, the government has implemented only one noteworthy development policy namely Aspirational District Program (including Aspirational Block Program).

In the first five years of this program (2017-2022) “the programme has acted as a successful template of good and effective governance, Under this programme India’s 112 backward districts have shown remarkable progress across key sectors that matter to the people. The core strength of the programme is its focus on data driven governance that drives evidence-based policy interventions at the district-level. NITI Aayog monitors the 112 Aspirational districts on Key Performance Indicators (KPI) on a monthly basis. The KPIs are designed in a way that the input and process indicators are being evaluated so as to achieve desirable outputs and outcomes across major socio-economic themes such as health & nutrition, education, agriculture & water resources, financial inclusion & skill development, and basic infrastructure. The robust monitoring strategy has enabled the district administration to engage in cross-departmental reviews and thus drive convergence. The competition through the monthly release of delta ranks keeps the districts constantly motivated to improve the KPIs.”

The achievements under the National Monetization Pipeline programs and Production Linked Initiatives (which are restructured models of old policy initiatives) are below par.

Besides this, New Education Policy is under implementation and Integrated Health Policy is under consideration.

Mission LiFE – Lifestyle for Environment is mostly at the conception stage.

In my assessment, the incumbent government has in fact performed less than ordinary on the policymaking front, while scoring well on execution.

I shall be happy to receive views of the readers on this aspect.

Tuesday, October 17, 2023

Policy paralysis – UPA vs NDA

“Policy paralysis” of the preceding Dr Manmohan Singh led UPA government was one of the main planks of PM Modi’s election campaign in 2013-2014. The business community, middle classes, and poor, all were convinced that the UPA government suffers from a severe degree of inertia in policymaking and is therefore responsible for the poor growth of the Indian economy. It was alleged that large-scale and blatant corruption, nepotism (lack of meritocracy), and weak leadership are the primary reasons for the “policy paralysis” and poor execution.

The campaign against the incumbent government was so effective that it swayed the big industrialists and SMEs which directly benefited from the government’s developmental efforts; the poor who benefited tremendously from the transformative social initiatives; and the middle classes who were protected from any potential collateral damage from the global financial crisis and events in its aftermath, against the government.

In their disappointment with the then incumbent government, few consider allowing the government any concession for-

(i) The global financial crisis (GFC) of 2008-09 threatened to push the global economy into the worst condition since the great depression of the 1930s. The Indian economy still managed to grow over 7% during the five-year (FY10-FY14) period post-GFC, notwithstanding the challenging global conditions.

(ii) A high base effect. The Indian economy had its best phase during 2004-2011; growing over 8% CAGR. Despite such a high base effect and global slowdown, the Indian economy was still growing by over 7% in 2014.

(iii) The several major policy decisions taken by the UPA government, having a transformative impact on India’s socio-economic milieu. For example—

· Employment Guarantee (MNREGA) through enactment of Mahatma Gandhi National Rural Employment Guarantee Act, 2005.

· Food Security for 81 crore poor people through National Food Security Act, (NFSA) 2013

· Right to Education for all children between the age of 6-14 through The Right of Children to Free and Compulsory Education Act, 2009. (It is pertinent to note that through the 86^th amendment to the Constitution of India in 2002, Article 21A was inserted in the Indian constitution to make Education a fundamental Right.).

· Right to Information through enactment of the Right to Information Act 2005.

· Financial Inclusion- provision of banking facilities to all 73,000 habitations having a population of over 2,000 by FY12, using appropriate technologies.

· Unique Identity for all citizens (Aadhar) through the implementation of Aadhaar and Other Laws (Amendment) Act 2009. Unique Identification Authority of India (UIDAI), has been officially acknowledged as a legislative authority, since July 12, 2016, in accordance with the Aadhaar Act 2016.

· Digitization of payments through incorporation of National Payments Corporation of India (NPCI) was incorporated in 2008 as an umbrella organization for operating retail payments and settlement systems in India. NPCI facilitates transformative payment solutions like UPI, Bharat Bill Pay, FasTag, and Direct Benefit Transfers (DBT).

· FDI in retail trade.

· Civil Nuclear Deal with the US allowing India entry into elite clubs as a key strategic partner.

· Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 to facilitate faster execution of infrastructure projects and minimize litigation in the acquisition of land.

· Deregulation of transportation fuel prices and eliminating kerosene subsidies that had adversely impacted the fiscal balance of the central government for decades.

· Including reforms in tax sharing formula between states and center in scope of 14^th Finance Commission (set up in 2013 and recommendation accepted in February 2015) to improve state and center relationships and allow states more autonomy.

· UPA government also proposed a uniform Goods and Service Tax (GST) in 2007 and a Direct Tax Code later. However, these could not be implemented due to different views of the opposition ruled states.

Instead, some unsubstantiated allegations of mega corruption dominated the narrative and overwhelmed the voters’ sentiment.

It is pertinent to note that some hypothetical charges of corruption in the allocation of 2G spectrum and coal mines raised in CAG reports were blown out of proportion and eventually led to the cancellation of 122 telecom licenses in 2012 and 204 coal blocks in 2014 by the Supreme Court. Notably, in 2017 a special CBI court acquitted everyone accused in the 2G spectrum case stating that the prosecution had failed to prove any charge against any of the accused, made in its well-choreographed charge sheet. Nonetheless, the cancellation of licenses and coal blocks led to the bankruptcies of some entities, causing massive losses to their lenders.

In my view, therefore, it is particularly important to evaluate the performance of the incumbent government in relation to “policymaking”; because good policies have the potential to catapult the economy into a higher growth orbit. Execution of policies and programs indubitably helps in sustaining the momentum, but innovative policies are key to growth acceleration and socio-economic transformation.

...to continue tomorrow

Wednesday, October 11, 2023

Manufacturing a status quo bias

In a paper published in 1988 researchers William Samuelson and Richard Zeckhauser highlighted that a large majority of people have a cognitive bias against change in their present conditions. In their research, they found that “people show a disproportionate preference for choices that maintain the status quo.” They referred to this trait of human behavior as “status quo bias”. Several other researchers have added subsequently to the findings of Samuelson and Zeckhauser.

In my personal life, I have noticed several instances of status quo bias whether it is ordering in a restaurant, making investment decisions, buying vehicles, choosing healthcare professionals, or even voting in the elections.

I find that status quo bias is particularly strong during periods of stress or crisis. I have observed that during periods of stress or crisis (actual or perceived) people generally avoid trying new things, people, or places, etc. They prefer to trust their existing captain when the waters become rough, rather than preferring a change of guards.

The politicians world over perhaps recognized this cognitive bias of people a long time ago and internalized this in their election strategy books. In this age of social media, where information (especially falsehood) spreads faster than sunlight, they often manufacture crises to distract people from real issues and nudge them to maintain status quo, i.e., keep the extant establishments in power.

The reaction of many heads of government, e.g., the US, the UK, France, India etc., to the latest attacks of the Palestinian Hamas Militia on Israeli territories and people indicates their eagerness to shift the popular narrative away from the domestic problems to a distant localized geopolitical event, which may or may not have material implications for their domestic constituencies. To the naked eye, it appears that they are manufacturing a crisis that does not exist just to distract the attention of their domestic constituency and invoke their cognitive status quo bias.

The US economy is struggling to manage the mountains of debt it has accumulated in the past three years; elevated inflation that is hurting the household budgets badly; rising homelessness; rising crimes and drug abuse; crashing ratings of the incumbent President; an apparently clueless central bank; rising discontentment over its policy to fund Ukraine’s war efforts; and diminishing clout over global policy-making (especially in light of the total failure of economic sanctions on Russia and dismal impact of its tariff war with China), pensioners and savers staring at huge losses on their bond portfolios; and financial system placed precariously as MTM losses on their treasury holding climb (eroding their reserves), household delinquencies rising and corporate bankruptcies also rising ominously.

The situation in the UK and France is no different. It may actually be worse than the US, as any visitor to the cities of London and Paris would tell you about the collapse of civic infrastructure, and the rise in homelessness, petty crime, and racial slurs.

Back home, I find that “Hamas” and “Israel” are trending in all social media ahead of the Cricket ODI World Cup. This explains the kind of frenzy created to distract people from core issues that affect their day-to-day lives. Our government seems to have changed our long held Middle East policy of equidistance from both Israel and Palestine, without any discussion or offering any explanation, totally disregarding the fact that it could have serious implications for our energy security and internal security.

Tuesday, July 25, 2023

Battle Ground 2024 - Forces are alligned

In about ten months from now, Indian citizens will vote to elect a government that will govern the country for the next five years. The general elections that would likely be held during March-May 2024 are widely recognized as the largest carnival of democracy in the world. About one billion voters would be eligible to exercise their franchise in 2024. Even a 60% participation would mean 600 million voters casting their vote; more than 4x the number of eligible voters cast in the 2019 US elections.

The election carnival in fact begins six months early with some key states holding elections for their respective state legislative assemblies. Historically, the correlation between the results of state assembly elections and the subsequent general elections has not been significant. For example, in 2018, the ruling NDA lost all four state elections (Madhya Pradesh, Rajasthan, Chhattisgarh, and Telangana) but went on to win the 2019 general election with a huge majority. Regardless, these elections would be contested and watched keenly.

A large majority of the population in India mostly depends on government policies for their basic survival needs like food, education, healthcare, etc. It is, therefore, natural that elections attract keen interest from the people. The political parties do their best to present an agenda that would appeal to the immediate needs, desires, and/or aspirations of people, in their endeavor to influence voting preferences of the electorates. On the flip side, a part of the population, which does not avail of direct public benefits like free food, education, medicine, old age pension etc., is seen to be avoiding active participation in the election process. This makes the voting percentages low – ranging between 55-65%.

In the forthcoming elections, ideally, the voters’ preferences ought to be influenced primarily by—

1. Comparative evaluation of the ten-year (2004-2014) performance of the Dr. Manmohan Singh led United Progressive Alliance (UPA) government with the ten-year (2014-2024) performance of the incumbent prime minister Narendra Modi led National Democratic Alliance (NDA);

2. Agenda for the 2024-2029 terms presented by the incumbent and the challenger; and

3. Confidence in the capability of the incumbent and the challengers to deliver on their respective promises.

In practice, however, it is seen that the voters’ decisions are often influenced by the latest popular narrative and rhetoric. Many a time, the strongest narrative and loudest rhetoric win, regardless of the actual performance, vision, programs, and capabilities to deliver.

In preparation of the battle for power in 2024, the battle lines have been drawn. As per the latest reports, 38 political parties have joined hands to contest 2024 general elections as part of the National Democratic Alliance (NDA) led by the Bhartiya Janta Party (BJP); while 26 political parties have come together to form a new alliance christened the Indian National Developmental Inclusive Alliance (I.N.D.I.A.). Apparently, the new alliance shall be contesting the 2024 elections under collective leadership and a common agenda.

In the course of this week, I shall share my views on the agenda, narrative, and rhetoric that may be used to influence the voters’ preferences by the two sides; and how the smaller parties who have not yet aligned with the two main groupings may influence the final outcome.

Thursday, February 23, 2023

What Modi is doing right!

Continuing from yesterday (The great Indian carnival)

With the presentation of the union budget earlier this month, the incumbent government has entered the final phase of preparations for the 2024 general elections. The preparations would be tested in several state assembly elections to be held prior to the general elections. Amongst these Karnataka, Madhya Pradesh and Rajasthan shall be keen contests.

As per most of the recent surveys, the ruling National Democratic Alliance (NDA) led by Prime Minister Narendra Modi, is likely to return to power for a third successive term in 2024. The alliance is mostly riding on the popularity of PM Modi for its electoral success. Of course the lack of a strong national alternative is also working in favour of the incumbent government, to some extent. It is therefore pertinent to examine what PM Modi has done right to maintain its popularity for the past nine years.

I would not like to delve into the role of the political strategy of BJP in sustaining the popularity of PM Modi, as it could involve dealing with several controversial issues. Besides, the political strategy is too obvious for everyone to see. I would therefore focus on the economic strategy of the PM Modi led government.

Continuing the good work of previous governments

The first thing that PM Modi has ensured is that the key growth drivers of the Indian economy that have evolved over the past two decades are not only sustained but also provided additional impetus. His government has continued and even accelerated the infrastructure development program, especially connectivity & logistics (roads, ports, airports and telecom), self-reliance in defence and development and commercialization of space programs, initiated under the Vajpayee led NDA-1 government and sustained under UPA governments (2004-2014).

The incumbent government has materially enhanced the program to digitize the economy with Aadhar and UPI developed by NPCI at the core. The financial inclusion program started in early 2010s has gathered significant pace with wider acceptance of Aadhar and UPI, and evolution of digital payment technologies.

In a recent presentation Nandan Nilekani, succinctly summarized the key drivers of the economic development and growth of India in the next ten year. Speaking to a group of investors in Bengaluru, Mr. Nilekani said, he believes “the Digital Public Goods (DPG) used in India today will form the basis for India’s economic development because the three cornerstones of the modern economy are no longer roti, kapda, aur makaan; they are identification, financial inclusion, and mobile + internet connectivity. The creation of the ‘India stack’ – Aadhaar (universal identification), Jan Dhan (bank accounts for all), Unified Payments Interface (UPI: online transactions using mobile phones), and Open Network for Digital Commerce (ONDC: seamless & democratized eCommerce) – is helping India get closer to delivering on this critical trinity. These initiatives will impact three key sectors – credit, logistics, and eCommerce – which in turn could have positive spillover effects thus propelling India towards becoming a $10 trillion economy”.

The government adequately supported DRDO and ISRO to continue with their missile and space development programs; and added significant impetus to domestic defence production by opening some key areas to the private sector.

Supporting the bottom of the pyramid through food and social security

Like the previous governments, the incumbent government has also maintained a socialist character and continued to support the bottom of the pyramid through social security programs like MNREGA and National Food Security Act. It has in fact further enhanced the social security programs through introduction of basic universal income and health insurance for select segments of the society.

Widening the global trade

The incumbent government has not only continued the policy of deepening the trade ties with the traditional trade partners, but materially widened the global trade of India, by engaging with new trade partners and introducing many new lines of goods and services in India’s trade basket. The policy of bilateral free trade agreements has been continued and assigned high priority. This widening of trade engagements helped India in enhancing its strategic relevance to some extent.

Energy security with focus on green energy

A key area of achievement of the incumbent government is enhanced focus on energy security with high focus on green energy. Significant capacity has been added (is being added) in the areas of solar energy, wind energy and biofuel production. The green hydrogen mission has been initiated. Though it is still early days, the strategy is likely to yield material benefits in socio-economic terms in the coming years.

Fiscal discipline

Fiscal discipline has been a hallmark of the economic policy of the incumbent government. Despite several social and political challenges the government has successfully reigned fuel subsidy; and managed the food and fertilizer subsidies reasonably well to keep the overall fiscal deficit within the acceptable parameters.

These features of the economic policy have ensured that the Indian economy has weathered the pandemic & consequent global slowdown; and monetary tightening with minimum damage. Though the growth trajectory has stagnated at suboptimal level; employment generation has been poor, and performance in some key areas like disinvestment, farm sector reforms etc., has not been good, the popular sentiment continues to be in favor of PM Modi.

Wednesday, February 22, 2023

The great Indian carnival

Festivals are quintessential to the idea of India. No one can imagine India excluding the hundreds of festivals we celebrate. There is hardly any day on the calendar that is not marked with a religious observance or a social celebration. As a community we are so addicted to festivities that we even celebrate sporting events as festivals. Not surprising, political events like elections, local level political appointments, conventions of political parties, etc. are also celebrated as major festivals in India.

The largest festival in the world, Indian general election, is scheduled to be held in about one year from now. All political parties, like the troops participating in the annual carnival in Brazil, have already started preparing for the quinquennial event. The potential 950million voters are also looking forward to it; though one third of them may actually not bother to exercise their franchise.

In most major democracies in the world, the incumbent leadership and/or party seeks reelection on the basis of its performance in the current term and proposed agenda for the prospective term. However, in India the elections are mostly about persons rather than policies and programs. The caste and religion of the candidate is assigned more importance than their views on socio-economic policies; commitment to political ideology; or past performance.

There are many examples of one person contesting and winning as candidate of political parties subscribing to completely opposite socio-political ideologies. There is no limit on the number of times a person can represent a constituency (or different constituencies) in the parliament. There are numerous examples of candidates repeatedly winning from the same constituency despite dismal past performance and inadequate agenda for the future. In fact, many notorious candidates facing serious criminal charges like murder, rape, dacoity, kidnapping etc. not only get repeated nomination; they get elected with overwhelming majority.

In my recent trips to the hinterlands and various large cities, I discussed the current political scenario with people from various sections of the society. There appears to be unanimity on the point of the quality of politicians. Everyone appears convinced that the quality of politicians in India has deteriorated over the past 3 decades. Senior citizens recall that politicians in the 1950s, 1960s and 1970s were highly educated and held impeccable character. The quality started deteriorating in the late 1980s and the rate of decline accelerated sharply from the 1990s.

Surprisingly, the decline in the quality of Indian politics and politicians coincided with the structural improvement in the Indian economy. The socio-economic parameters like growth rate, occupational structure, urbanization, globalization, literacy rate, access and connectivity (roads, media, telephony, TV, internet etc.), higher education, gender equality, etc., have indubitably improved materially in the past three decades. The worst part is that the primary driver of popular mandate is no longer socio-economic upliftment; but the regressive agenda of aggressive social divide.

The points to ponder therefore are: (i) Why the empowered, enabled and enriched citizens are not aspiring for a cleaner, ethical and progressive political system; and (ii) Does socio-economic growth and development in India have any correlation with the political set up in India?

….to continue

Wednesday, November 16, 2022

Politico-economic ideologies slithering in obscurity

In my view, we have entered a phase in world history where the politico-economic ideologies, e.g., free market, socialism, communism etc., have lost their theoretical context. In a significantly large number of countries the ruling parties and their leaders are not particular about adhering to their core ideologies. The voter base of the parties also appears to be divided on the basis of current issues rather than the core ideologies.

The sharp rise in socio-economic inequalities across the ‘democratic world’ has made the bulging bottom of the socio-economic pyramid even more attractive from ‘popular vote’ perspectives; and the thinnest ever top of the pyramid the most attractive from election funding and corruption purposes.

We are, therefore, witnessing (i) a larger role of governments in the economies; (ii) deeper influence of large corporates in the matters of economics and geopolitics; and (iii) preference for stronger (egotist; fascist; ultranationalist; hardliner whatever you prefer to call them) leaders who could be hailed as superhero – taxing the rich (mostly middle classes) and providing for the poor. It would be interesting to see what shape this opportunist politico-economic ideology finally acquires to become a legitimate widely acceptable political practice.

The Wikipedia page describing “Political Parties in the United States”, incidentally provides a good historical context to the latest transition in the global politico-economic order. It, inter alia, reads as follows:

“The first President of the United States, George Washington, was not a member of any political party at the time of his election or throughout his tenure as president. Furthermore, he hoped that political parties would not be formed, fearing conflict and stagnation, as outlined in his Farewell Address. The Founders “did not believe in parties as such, scorned those that they were conscious of as historical models, had a keen terror of party spirit and its evil consequences," but Richard Hofstadter wrote, "almost as soon as their national government was in operation, found it necessary to establish parties.”

In the past 150+ years the two dominant parties have changed their ideologies and base of support considerably but kept their names. The Democratic party, that in the aftermath of the Civil War was an agrarian pro-states-rights, anti-civil rights, pro-easy money, anti-tariff, anti-bank, coalition of Jim Crow "Solid South", Western small farmers, along with budding labor unions and Catholic immigrants; has evolved into what is as of 2020, a strongly pro-civil rights party, disproportionately composed of women, LGBT, union members, and urban, educated, younger, non-white voters. Over the same period the Republican Party has gone from being the dominant American "Grand Old Party" of business large and small, skilled craftsmen, clerks, professionals and freed African Americans, based especially in the industrial northeast; to a right-wing/conservative party loyal to Donald Trump, disproportionately composed of family businesses, less educated, older, rural, southern, religious, and white working class voters. Along with this realignment, political and ideological polarization has increased, norms have deteriorated, leading to greater tension and "deadlock" in attempts to pass ideologically controversial bills. (emphasis supplied)”

In the context of Indian politics, we see that all socialist parties have become feudal; BJP that started as a party of middle class upper caste businessmen and Hindu nationalists is winning elections on “social welfare program” agenda; the left of center Congress is striving hard to establish its Hindu credentials and Hardline Hindu Shiv Sena is preaching secularism.

The Indian National Congress which started with the Leninist concept of planned economy driven mainly through public sector; inserted the word “socialist” in the preamble of the Constitution of India”; curtailed free speech by imposing national emergency ended up as a strong votary of disinvestment of public sector; right to information; free trade and larger role for private sector.

BJP gained power on the promise of “less government” and is affording more power to the government; stifling transparency and free speech; has not pursued privatization in the past 8yrs of rule. ``Free ration”, “cheap (free) medicine” and cash subsidies have been its primary campaign slogans in most of the recent elections. The party with difference is now happy to be led by a strong leader who has vowed to destroy all its opponents.

Socialist parties like BSP, SP, RJD, LJP, TMC etc. have mostly become fiefdoms of leading families and appear more feudal in their conduct than anybody else.

The middle class people raised their voice against the rampant corruption of the Congress led UPA government leading to a nationwide movement that resulted in the birth of Aam Aadmi Party. The same party is now seen as a party of the poor financed by corrupt businessmen. Some of its leaders are facing allegations of serious corruption and communal rioting. Most professionals who enthusiastically joined the party have deserted it alleging lack of internal democracy and autocratic ways of the top leadership.

The traditional ideologies like free market, socialism, communism etc. have absolutely no role to play in the Indian politico-economic paradigm. The global transition might also have some reverberation in India also. However, insofar as the latest round of elections is concerned the results would hardly change anything in the broader context. Congress has nothing to lose in these elections; though stakes are high for both AAP and BJP. There could be some setbacks for both.

Tuesday, June 21, 2022

Nano, NRC, Farms and Agnipath

In March 2009, Tata Motors, the largest automobile manufacturing company in India, rolled out an inexpensive small car from its plant in Sanand town of Ahmedabad district of Gujarat. The car was metaphorically named Nano, which means dwarf in Greek and Little in Gujarati. The ambitious project of the Tata Group chairman Ratan Tata, is remembered for multiple reasons.

First, the plant to manufacture Nano was planned to be set up in Singur town of Hooghly district of West Bengal. The then Left Front government acquired the farm land for the project and handed it over to Tata Motors. The then leader of opposition in West Bengal, Mamta Banerjee organized a massive protest that turned violent against the project, alleging that the land of farmers had been acquired inappropriately. Many activists and celebrities supported Ms. Banerjee’s protests and Tata Motors was finally forced to withdraw the project from the state of West Bengal. The then Chief Minister of Gujarat, availed the opportunity and invited Tata Motors to set up the plant in Sanand.

The event established Ms. Banerjee as champion of farmers’ cause and helped her demolish the Left Front fortress in West Bengal. The 35yr old Left Front regime ended in West Bengal in 2011 and since then Ms. Banerjee is ruling supreme in the State.

The event also catalyzed the development of a fourth major automotive manufacturing cluster in Sanand, after Chennai, Pune, and Gurgaon in the country. This also cemented the position of the then Chief Minister of Gujarat, Mr. Narendra Bhai Damodardas Modi, as champion of industrial development and economic reforms. This image eventually catapulted Mr. Modi to the center of Indian politics, making him the most popular political leader and the prime minister in the country in 2014.

The Lakhtakiya car (Rs. One lac car), Nano, however miserably failed to recreate the magic of the Maruti800, the first “common man car” introduced in India in December 1983. Maruti800 remained the best-selling car in India for over two decades. In fact its later variant Maruti Alto is still one of the most popular cars in India. Nano could not last even for one decade. Nano was put to rest in 2018, as Tata Motors decided to cut the losses.

The day Nano was launched and declared a revolution by the media, I intuitively knew that this product was destined to fail. Tata Motors was trying to reinvent the Maruti800, without giving any consideration to the evolution of Indian socio-economic character in the past 3 decades.

The Maruti800 was launched at a time when the Indian middle class was starved of everything, especially quality. “Car” was still a luxury. The economic setup was overwhelmingly socialist and the Maruti800 was actually a public sector product – aimed to provide an affordable mobility solution to the urban middle class population that depended mostly on public transport or two wheelers for commuting.

Tata Nano, on the other hand, was launched at a time when free market has taken so much deeper roots that even communists agreed to acquire farm land to allow Tata Motor to set up a “Car” factory in West Bengal. Tata Motors positioned Nano as an aspirational product to the lower middle class people, emphasizing on Rs one lac cost as a primary selling proposition. The company failed to realize that no aspiration lower middle class family would want to spend Rs one lac, only to be ridiculed by neighbors and relatives as owners of a “cheap” car.

In my view, Nano could have been a successful product, if it was positioned as “convenience”. It could have done well, in my view, if positioned as the second car for shopping in crowded markets, or commuting to school and colleges, or even to be used as a replacement for auto rickshaw etc. I therefore feel that Nano was more of a marketing disaster than an engineering failure.

Applying this analogy to the recent two policy disasters, i.e., Farm Laws and Armed Forces short term recruitment schemes. The three farm laws were well intended and much desired reform measures that had to be abandoned because the government did not market it well. Similar is the case with Agnipath scheme that allows youth a short term (4yr) stint with armed forces. I find that the government could have packaged the scheme better and position it differently. Surprisingly, the Prime Minister Modi, who had firsthand witnessed the Nano fiasco as the Chief Minister of Gujarat, did not apply his learnings to these cases of policy disaster.

The template of NRC/CAA and farm law protests is being used in the latest protests also. If the situation worsens further, and the government is forced to withdraw the Agnipath scheme, before the elections in Gujarat and Himachal Pradesh, scheduled to be held later this year, it will set a dangerous precedent for future reform measures.

Tuesday, March 15, 2022

No trend has been broken by the latest elections

On the Monday, 7^th of March 2022, Nifty opened with a cut of ~380points (or 2.3%), and ended the trading session almost at the opening level. Not much new had happened over the weekend to warrant this kind of fall on Monday morning. The Russia-Ukraine conflict was intense throughout the previous week and the commodity prices were already rising. Many friends enquired what could be the reason for this sharp cut on Monday. I was not sure about it, so I started inquiring from various market participants whose numbers are stored in my phonebook. Unsurprisingly, none offered any convincing explanation. Some people however felt compelled to offer an explanation, for the fear of losing the “expert” status they enjoy in my opinion.

``The exit polls today evening may show the BJP losing UP elections”, was the most common explanation offered by the experts. When I asked, how do you know about exit polls, sitting far away from UP?, they indicated that they have “credible sources” reporting from the ground. Since, I myself had travelled to UP thrice to assess the people’s mood and my view was quite contrary to these sources, I decided to dig a little deeper. What came out was absolutely astonishing. Most of these “experts” were relying on a column published by Mr. S. A. Aiyar in the Sunday’s Times of India, and some studio experts who had “personally” witnessed an anti BJP wave in UP.

As an amateur politics enthusiast, I have been actively following elections for the past 3 decades. It has been my consistent view that economics in India is politics agnostic and as such has no direct correlation with the markets (for example see here and here). Therefore, learning that one column in a newspaper, based on prejudiced imaginary, could influence the markets so much is surprising to me. Anyways, the exit polls results that evening did not concur with Mr. Aiyar and most studio experts, and the markets recovered Monday's losses in the next couple of days. Thankfully, Mr. Aiyar also changed his opinion in his next column (Sunday, 13^th March 2022) and the studio experts have also offered a variety of explanations for the election's outcome.

Regardless of the opinions and views of experts and election outcome, I would like to reiterate that drawing economic and market inferences from the election outcome may not be useful. I continue to believe that the evolution of economic policy and hence the direction and trajectory of economic growth is incremental in India.

Since independence, all the political parties in India have pursued the same economic policies paradigm with incremental changes. Only twice a non-linear shift has occurred in the economic policy paradigm – First in 1991 when the economy was opened up to the global competition (presumably under the pressure of global agencies which bailed out India out of a balance of payment crisis); and in 1998-2000 when the government gave up many monopolies to seek larger private sector participation in the economic growth (presumably to counter the impact of global sanctions post 1998 nuclear test). In 1991 we had a Congress led minority government at the helm. In 1998-2000, we had a BJP led coalition government that comprised 27 regional parties of all shades.

Like all elections, the latest elections have also thrown some new jargon like Upyogi (UP+Yogi) and Labharthi (beneficiaries of government schemes) etc. A narrative is being created to imply that free ration, housing subsidy, LPG cylinder etc. have won the support of women voters for the incumbent government in UP; and the attempts of caste and religious polarization have been mostly rejected by the voters. I would like to draw the attention of readers to the following insight I gained from my numerous travels across the state of UP, Uttarakhand and Punjab.

1. India is constitutionally a socialist country. No government in India can adopt an economic agenda that is against the principles of socialism. All governments in the country have pursued a socialist agenda and will continue to do so. The cash transfer schemes to farmers and urban poor, free LPG schemes, health insurance implemented by the incumbent governments are incremental improvements over the schemes being implemented since independence.

The factors like technology developments, financial inclusion, Aadhar and increased awareness due to social media, etc. have only made the delivery of schemes more efficient and transparent. This trend will continue in the foreseeable future. It may in fact accelerate as the citizens become more aware about the power of their franchise and become more demanding. Free internet data could be the next offering in this series.

2. The development narrative of governments is mostly an appropriation of a consistent trend. The expressway construction program in UP started with the Golden Triangle 25yrs ago. Every government in the past 25years has taken the process forward. The pace was slower in the first decade due to multiple obstacles (mostly land acquisition). The implementation of new land acquisition policy (2x or 4x compensation and 80% acquisition prior to commencement of construction), and better technology and equipment has led to faster execution. Between the years 2012-17 the total installed electricity generation capacity in UP increased 81% from 13053MW to 23662MW. During 2017-21 it registered an increase of 18% from 23662 MW to 27896MW. The development of civil aviation infrastructure also started more than 2 decades ago when the NDA government decided to allow private airport operators. New airports and better air connectivity has been a consistent trend for the past two decades.

3. The analysis of the latest elections has focused much on the emergence of “women vote bank”. It is being emphasized that the women have identified the PM with the benefit schemes of free ration, housing, LPG connection, health insurance etc. and therefore overwhelmingly voted for BJP. It is pertinent to note in this context:

(i) Mrs. Indira Gandhi had successfully created a women vote bank with similar schemes. Charming Rajiv Gandhi had also attracted women votes in large chunks to make history in 1984 Lok Sabha elections.

(ii) Punjabi women also got similar benefits as UP benefits, but did not vote for BJP.

I have highlighted this in many previous elections since 2014 that the women voters have become more assertive in the states like UP, Haryana, Punjab, Uttarakhand, Rajasthan and Bihar. Traditionally, in these states the women were seen to be voting as “directed” by the head of the family (usually husband or father) or community leaders (Khap, Maulvi, etc.)

The Anna Hazare movement in 2011-12 and subsequently Aam Aadmi Party campaign in 2013-14, brought the political discussion to the drawing rooms and kitchens of households, from the clubs and chaupals. The women of the house started asserting herself politically and rebelled against the dictates of their fathers and husbands. Losses suffered by the parties like INLD, RLD and BSP in the last decade are clear indications of women rebelling against the “male dictate” to vote.

It would be inappropriate to ignore the contribution of Ms. Mayawati in the area of girls education. I have been frequently highlighting how the rise in the number of girls going to school (walking or cycling for several kilometers daily) has been the most striking change in UP in the past 15years.