The New Year started with one more new slogan; Niti Aayog in place of Planning Commission.
A National Institution for Transforming India (NITI) was announced by Prime Minister Narendra Modi from the Red Fort last August that the Planning Commission was going to be no more. It was going to be suitably translated to NitiAayog, with five members and with all chief ministers on board.
The big change; there being no Deputy Chairman anymore; to be replaced by a CEO. With names changed, the Aayog will in all probability continue to do what it had done all along. It continues working from its majestic building and with its 1000 strong staff. There was just no Deputy Chairmen or his small army of members. The Prime Minister so far has appointed Sindhushree as the CEO, Arvind Panagariya as Vice Chairman with two full-time members – economist Bibek Debroy and secretary of defence V.K. Saraswat. The other members and invitees are all from the Union Cabinet.
The NDA government had everything going for it from May. A thoroughly discredited government was decimated; a new government put in place with a clear majority. The middle class Indian, most upset with expenditures on poverty alleviation, high interest rates and black money stashed abroad, was rooting for change. This articulate class demanded action. It wanted subsidies slashed, taxes cut, FDI opened up and environmental regulation scrapped. It was tired of old-fashioned conservatism that wanted food security, argued for investment in public health and nationalised large industry.
The honeymoon started well. A new energy was evident and the Prime Minister meant business. The bureaucracy was first shown its place. No more golf club lunches, babus coming to office on time and recording attendances. Ministers on surprise checks and errant officers punished by cutting leave. No longer would you need to pay that ten-rupee fee to sleepy notaries who attested various declarations and affidavits. And wonder of wonders, petrol and diesel prices came down. Japan promised 35 billions of dollars of investment in India. The Chinese President visited and promised a 100 billion.
Then the cookie started crumbling. Japanese investments actually went lower and lower until they went even lower than they were in 2013. China aggressively announced that its army is ready for regional war; then said it wasn’t meant for India. The 100 billion dollar investment promise was explained away by talk of spreading it over several years. The tall claims on bringing back black money from Swiss accounts became a sordid thorn in the flesh, and Venkaiah Naidu had to come up with a most audacious explanation saying that the promise was not on bringing back the money but on initiating action! A number of ruling party MPs started asking tough questions and Venkaiah again had to appeal to his party men not to embarrass their own ministers.
The problem is that the middle class in India got swayed by slogans. Make in India, proclaims the PM. The RBI Governor doesn’t quite agree. The manufacturers smirk, we need electricity to make in India or for India. The debt ridden corporate sector is hopping mad. You promised interest rates would come down, and now you say the RBI Governor doesn’t agree! The huge loans taken five years ago are destroying bottom lines, and therefore we have no choice but to build non-performing assets for banks who gave us money. Bank NPAs have reached a level we haven’t seen in recent times, and the financial sector is under tremendous strain. On top of this, you want us to borrow more and create capacity and jobs! Go get those interest rates down first, restructure our loans, spend more government money and create demand, and protect us with higher tariffs and with differential rules on government procurement.
The food security will be brought down, said another slogan. These lazy poor should not be given doles. Then the government does something spectacular. A suave commerce minister fights for retaining high levels of food security at the WTO and comes back claiming victory. India will not be questioned on its food security programme any more. And even the most diehard fan of the Prime Minister now does not take the black money slogan seriously. We will clean the rivers. Jan Dhan will open hundreds and millions of bank accounts. Bharat will be digital and 100 cities will be smart. The problem with so many slogans is that the aggregate capital outlay is exorbitant and cannot be allocated as even the normal and conservative tax collection target is not being met.
We were also told that thousands of investors and millions of NRIs are waiting with their cheques to invest in India. Open up the insurance sector and nearly 60000 crores will come in. Simplify land acquisition and all these multibillion dollar projects will get started. However, the Parliament will not function. So what, we will rule through Ordinances. The UPA government had passed 61 of them. Now why are the foreign investors suspicious of Ordinances? Why have they all decided that they will postpone their India plans till after the budget session?
What has suddenly happened to the famous hyped Gujarat model? Wasn’t that the most famous slogan during the election campaign? Having believed that such a thing existed now the incredulous analysts are looking for the model. What IS the Gujarat model? Centralised decision making…no power to the bureaucracy? Irrelevant ministers with officials reporting directly to the Prime Minster? A model is built on some platform; with some assumptions and some structure. The Kerala model was for example built on high social expenditure and negligible spends on industry. The Maharashtra model on tax breaks for industry, high MSPs for cotton and sugar and exploitation of India’s commercial capital. The Gujarat model at best was one which maintained a growth rate that it inherited and ensured that the bureaucracy is kept in tight check.
The finance ministry, true to its billing was the centre of attention. Here was this one super FM who would create magic. There was this excitement in the air as he stood up to read his budget speech, and went on and on reading out what many of the BJP cheer leaders themselves called the most boring speech they had heard from a finance minister in a long time. The corporate sector, waiting in the wings to rush out cheering, kept waiting for some hope through the two and a half hours Arun Jaitley spent reading the most uninspiring document presented in Parliament in a long time.
The retrospective taxation that every reformist had been arguing against was not done away with. The subsidies stayed at the level the earlier wasteful government had got them to. A number of grandiose schemes were announced, each one of them getting the royal sum of hundred crores each. As one government institution confessed, the amount of money they had was just enough to put up posters announcing the scheme. The rubbish gathered all around as there was no money allotted for dustbins or for brooms. The Swatchch Bharat campaign highlighted the mega decibel announcements and the whimper that followed. One rank one pension has already got the government in some trouble.
What has gone wrong then? Why are all these analysts and the commentators all around suddenly disappointed with their Gods? Why is the corporate sector complaining behind closed doors that the government is not doing enough? The murmurs are getting louder by the day. The bureaucracy is now whispering out loud…there is no law any more, it says. Only order! Ministers charged with rape continue to be in office. MPs charged with inciting violence land up with plum ministerships. AIIMS loses it chief vigilance officer. The law is an ass. Order must be maintained. The bureaucracy must work on Christmas day, school students should write essays on governance!
The global economy has been dampened by low commodity prices and the steep fall in crude oil rates. Recession is lurking around and most economists are unsure of recovery. High level of borrowings and bloated public deficits in the US and in Europe means that recession remains a real risk. The highly indebted governments in the United States and Europe pose a constant threat to the global economy. To add to troubles in the west, Japan and China both are shaky and Russia continues to lurch violently from one low to another.
In India, the most depressing news comes from the banking sector. Very simply put, demand for loans this year has been the lowest since 1998, and the RBI doesn’t have any data before the year 1998. What this means is that corporate investment is falling and working capital demand remains low. The economy hasn’t seen any huge investments in large sectors like roads, infrastructure and mining. The impact then goes downstream for example, when these infrastructure investments don’t happen, the demand for commercial vehicles also drops, further dampening credit offtake. Such a drop in credit offtake is indicative of a slowdown and not even the inveterate optimist would predict an increase in growth rates.
The business environment too continues to be stagnant. In fact corporate India is not willing to neither invest nor expand capacity yet, despite the celebration in having won an election for a party they fancied. The sectors that have been leading India’s industrial growth have all been sliding down. Telecom has still not recovered from the spectrum tangle. Pharma where India was supposed to lead the world has been going down ever since the US Food and Drug Administration passed strictures against Cadila, Wockhardt and Ranbaxy.
Ranbaxy and its performance this year has been symbolic of what the Indian economy has been going through. For the last two decades at least, Ranbaxy rode the wave of opening up and deregulation. It became known for its innovation and its product range. In a 4.2 billion dollar takeover, it got acquired by Daiichi Sankyo, the Japanese giant. And then the sordid past came crawling out of the woodwork. The US FDA pressed felony charges and Ranbaxy agreed to pay 500 million dollars of penalty. Ranbaxy became a burden for Daiichi which quit the Indian market this year after it lost more than half of the market value of its investment in Ranbaxy. Another Japanese firm that got disillusioned with India was Docomo, which sold its entire stake of 2.6 billion dollars at half its value and left this year
These debacles completely shook the investment community. In particular, the Japanese who never recovered from these shocks. FDI from Japan, despite the high decibel Prime Ministerial trip to Tokyo, remains a pipe dream. Analysts at the PWC show how the deals announced by Japanese have been dropping and only 4 each have been announced in the last two quarters while there were ten announced in the January to March 2014 quarter. The reason given by some is that India’s economic recovery is mere hype and is not translating into real growth.
The domestic corporate sector in India, apart from reeling in high debt, is also embroiled in various misadventures. The power sector is saddled with huge debt and is unable to bring this down. Unviable borrowings have made even giants like Tata Power and Reliance power vulnerable. Further, nowhere is this fragility more evident than in the airline sector, making the government announce bizarre steps like capping domestic tickets at 20000 rupees. Kingfisher airlines stay grounded and SpiceJet is staring at rough times. Subrata Roy is ensconced in jail, unable to convince the judiciary of his intentions to return the thousands of crores he has borrowed.
Minimum government and maximum governance said another catchy slogan. Then came the announcement last month that 21 new ministers would be sworn in. To make the Cabinet a much bigger one than the 44 member team it started off with this May. At 66, it is slightly smaller than the 73 member UPA 2 cabinet. The problem with the economy, especially a globalised one, is that sloganeering is not enough. India’s trade to GDP ratio is close to 50% and therefore while the economy will benefit from the easing of commodity and crude oil prices, it will also be hard hit when the dollar strengthens, when investments move to the US, China slows down and European imports go weak.
To a lot of people in India and outside, 2014 was long awaited. Billions of black money stashed in foreign banks would be brought back. Strong reforms measures would attract the world to start manufacturing in India. Parliament would start functioning and passing critical laws. Old and useless laws would be repealed. The rupee would get stronger and so on. The year ends with manufacturing growth going negative, GDP growth struggling to reach the 5% mark and the rupee at its lowest this year.
Indian firms did the exact opposite of what was expected from them. Assocham has estimated that during April – September 2014, India’s corporate sector actually invested 17.6 billion dollars abroad. The Make in India campaign notwithstanding, the foreign investor and also the Indian capitalist class are not convinced of the good days that were promised. The year 2014 certainly didn’t bring the good news that it promised. The economy looks just as dismal as it did a year ago. Hoping against hope for a better year……Huge Namo Year 2014 to Happy New Year 2015.
Bill Gates has tweeted that 2014 has been a turbulent year for several countries. Barack Obama has admitted that it has been a tough one. Back home, the mid-year euphoria over the promises of good days gave way to an economy that is trundling along at slightly above 5 per cent and a social fabric that is straining under severe right wing pressure. All the king’s men are now sceptical. Pratap Bhanu Mehta says the government is a Bollywood movie without a script. Arvind Panagariya says that without a clear road map of reforms…..the dream of good days will run the risk of becoming history.