Mumbai Explodes -again

Mumbai, our city of hopes and dreams, our icon of economic growth, shattered into pieces yesterday. The lives lost, including of our valiant policemen, are tremendously saddening. So much trauma, unbelievable tragedies. Today, I shed tears while watching the news, early morning at my end of the world.
I don't know why it feels like the end of the world. While I carp about slowing economic growth and rant against Government inaction, there has always been a sliver of hope. Someday, sometime, things will come together, and India will be back on track to deal with the crushing, grinding, inhuman, undignified poverty that hundreds of millions of its population have come to terms with. I think about enterprising young boys who make a living through jugaad, farmers happy about good monsoons, people coming to Mumbai to find a job and staying on, vendors with their carts and plastic sheets on the ground, all earning livelihoods. In a decade or so, at least people may not have to worry about empty stomachs.
But terrorists destroy a heritage building in Mumbai, attack 9 other popular and crowded areas, and suddenly even that tiny sliver of hope vanishes. India is inextricably drawn into the ever-widening circle of terror, part of the Pakistan-Afghanistan network. It gets labelled as an insecure nation, as ineffective in dealing with terror.
The Government has been appallingly weak in confronting terror. Last week, PM addressed state police chiefs and said we need stronger intelligence. For heaven's sake, he is not an elder statesman! He is the person in charge. He could very well have spent a few thousand crores on better equipping his police and intelligence forces, instead of letting them use carbines that look as if they still need to be greased with animal fat. We have central anti-terror outfits; they are under his administration. There were enough bomb blasts the previous few years all over the country to forecast a major one coming any moment. Surely we could have upgraded and modernised our training, equipment, intelligence gathering, etc. And where is our disaster management set-up?
This is an occasion when the PM should admit defeat and simply walk away into the night. Call general elections as soon as possible and let someone else with grit and determination handle the country. And let us remember that we are a single united nation, not a conglomeration of states with different governments. We need a single administration for national problems, and should not anymore indulge in blame games between state and central governments.
We are India.

More Laughs from Political Leadership

“There is a silver lining in this crisis,” Chidambaram said. “We have to seize the opportunity to review and revisit pending reforms.” He was speaking at the Economic Editors' conference on 24th Nov. So now it is clear, direct from the horse's mouth - there is no opportunity to move on pending reforms until there is a global crisis of such magnitude that the whole world is shaken in its aftermath.
http://www.bloomberg.com/apps/news?pid=20601091&sid=acU4Tmov9lzg&refer=india
"India is nowhere near a recession, although the country faces a difficult situation, the finance minister said. " Everyone knows that the definition of a recession is two successive quarters of negative growth. I am not sure that any of the economic editors and analysts have ever mentioned recession as a possibility for India. However, in India's context, anything less than the high of 9-10% is equivalent to recession.
"India has, if I may say, weathered the crisis,” Chidambaram said. “We paid a price in terms of inflation, but we still recorded high growth. I hope that the worst is over.” The worst is just beginning. But FM will be gone.
“The fundamentals of the Indian economy have been strong and continue to be strong.” FM cannot tout this theme for much longer. Apart from savings and investments, there is hardly much in the economy that remains strong. The economy has never been more vulnerable than it is now, except in 1991, when again the Rajiv Gandhi government had swept ills such as high public spending under the carpet.
Unfortunately, high public spending has again become the accepted way to deal with the crisis, and since everyone is talking about doing it, it must be right. It is only a matter of days before strong action will be announced by the Gorement - a committee will be set up. It might even have a deadline to submit its report. Rs 50,000 crore stimulus plan will be studied. By that time, elections will have come and gone.
A real stimulus? Slash interest rates, announce steep direct tax deductions, withdraw taxes that yield less than a certain amount and cause more administrative hassles, reduce prudential norms for SME even if that leads to slightly higher NPA down the road, disinvest from banks immediately. These can be done tomorrow without discussion. If Gorement does not seek consensus in announcing Rs 60,000 crores loan waiver and can add an extra Rs 10000 crore because Rahul Baba asks nicely, it does not need approvals for announcing measures that can save us with immediate effect.
Since according to FM the worst is over, if the UPA returns to the Center after the elections, we will have to wait another ten years for a global economic crisis before reforms can be carried out.

Congress, reforms and the Indian economy

I love waking up in the morning and seeing the most ridiculous reports on what our leaders have to say about the economy. And today finally it is clear - Congress has been the brilliant genius in the Indian economic story. As Sonia Gandhi pointed out in her address yesterday, Indira Gandhi showed tremendous prescience in protecting India from the global financial crisis. It was absolutely brilliant to nationalise the banks and see! here we are protected from the worst of the global crisis.
She didn't mention that it has been a policy of the 'carefully calibrated' reform process of the Congress to keep the people of India poor so that they remain badly malnourished - after all, that will protect them from obesity-related health problems in 40 years.
Of course, lack of water, electricity and housing in villages is also a brilliant prescient decision. We don't have to worry about mortgage foreclosures, carbon emissions and climate change.
I guess there is some brilliant design to illiteracy also - we'll know in another 40 years.
It was really kind of Sonia Gandhi to assure us that she didn't intend to go back to the license raj era. That yes, industry could continue to do more or less what they do as they do it. We are grateful for her magnanimity.
I didn't read the full text of the Prime Minister's speech. The headline that he continues to expect 8% GDP growth for the year gave me all the laughs I need for the day.
The revered Grand Architect of Reforms and the Father of Liberalisation deigned to go to USA for the G20 summit to give his valuable insights as an educated leader into the global crisis. "It is not of our making, but we are suffering," he intoned, or words to that effect. His complete paralysis in the policy sphere over the last almost five years makes one really wonder at the 1991 action. How is it possible that this man, who has displayed exemplary sclerosis for five years, could become Finance Minister in June 1991 and come out with a brilliant visionary reform document removing most controls by July 24th?
No, I rescind. I am wrong to doubt him. After all, his government anticipated the worst of the global financial crisis in February, and therefore put together all the needed policy measures to tackle it, such as farm loan waiver, NREGS expansion, and subsidies. Brilliant measures to infuse demand in the economy just in time for the global crisis in demand.
Congress has ruled the country for 40 of the last 60 years. I look forward to waking up to more such stories for the next 40 years.

Q2 GDP Growth

Next week, CSO will be coming out with its figures for GDP growth for the Indian economy in the second quarter. Nobody is looking forward to it.
A back of the envelope calculation - assuming agriculture growth at 3%, taking industry growth at 4.4% and believing that services could not have come in at less than 9% - leaves one with the amazingly low figure of 6.2% for the quarter. This is before the worst of the global economic crisis hit in October.
Agriculture remains a bright spot, and we should not ignore its demand impact on the rural population which has little to do with global developments. Bumper harvests are expected due to the good monsoons. [The massive Bihar floods unfortunately are below the monsoon performance radar, and most people have forgotten that millions remain unable to go back to their homes due to flood waters still not receded - but that is another blog]. Farmer credit will be a major problem going forward if the markets remain frozen in confidence.
Industrial growth has plummeted unbelievably low. Even CMIE has lowered its growth forecast, an institution that remained confident on the basis of corporate results that it monitors, quite forgetting that the unorganised sector is estimated to contribute over half of all output, including agricultural. It may talk about faulty IIP, but essentially, IIP is a wide-area survey and gives a good picture of direction.
Services, which contribute over half of economic growth, are the uncertain factor. We can keep all fingers crossed that it would not have gone lower than 9%, or even the 6.2% will appear too optimistic.
I firmly believe that the common man has greater economic savvy than the economic forecaster. So I would ask the vegetable vendor or the plumber about their opinions on life. If they grudgingly said 'okay' then GDP would come in at over 9%. If they launched on a rant against high prices and the Gorement, things were looking down. And if they wore an expression of stoic calm, things were really bad. Since I moved out of India, this ready reckoner is alas not available.
No, I certainly am not looking forward to 28 Nov

HIGHER AND HIGHER....

Here's the latest score on India and the US in higher education: Indian students in USA -94 thousand plus plus; American students in India - less than 3000. Guess which country can ill afford to send its youngsters out, yet wants to maintain its tight control on higher education, and includes education loans under priority sector.
I would not say that we are still sending out our best and brightest, because many of these students may not have got admission in decent Indian colleges, given that 'decent Indian colleges' is a contradictory statement. But even sending out the next tier, maybe mostly on scholarships, is costing us a lot of money. If the average cost is USD 40000 per student, how many zeros is that? And then there are the thousands of others who assiduously apply for US colleges - spending money on SAT and GRE/GMAT exams, application fees, coaching, consultants and touts - without finally making it. And there are the thousands who go to UK, Australia, Singapore, New Zealand, and even Malaysia. A back of the envelope calculation easily places annual expenditure on foreign education at $6 billion.
To its credit, the Gorement has examined the effects of liberalising higher education for FHEP (Foreign Higher Education Providers). The concerned report happily said it would be a good thing for India. Kamal Nath enthusiastically announced FDI in higher education three years ago. That was the last that was heard of it. From being a reputed and attractive destination for overseas students (at one time, 50000 students from Malaysia were studying in India), India has become a major buyer of higher education services from other countries.
Gorement has made a major push for expanding centers of excellence in India. Proposed are many new IITs and IIMs, science universities, central universities, et al. The heavy control of UGC will loom large over them, admissions will be limited by reservations, quality will continue to remain suspect. In the meantime, private colleges of relatives of politicians will continue to be set up without much regulation, affiliated to some state university nobody ever heard of. On the other hand, ISB Hyderabad with no affiliation is a highly reputed institution because of its strong backing.
So how can the higher education conundrum be resolved? More competition is needed in the sector. Easier entry, better regulation, and marketable skills. Most of all, FDI from reputed sources must be allowed in the area. In these days of internet connectivity, it is really impossibly foolish to imagine that by not allowing 'subversive' foreign universities, we are protecting our culture and morals. And the money we could make from getting overseas students to Indian colleges! Alas, like all other areas, nobody wants to ease the rent-seeking that comes from imperfectly functioning higher education.

OBAMA MANIA

With the whole world coming out with blogs on the new US president, I couldn't let myself be left behind in the opinion rush. Admittedly, I followed the entire election process from the beginning of the year as avidly as if it was a hot reality show. The CNN atmosphere is still much like The Amazing Race.
The 'first African American president' part didn't really appeal, because Obama didn't run on that platform and was never a black leader. It is even doubtful how much of the African American experience he represents. His father was truly from Africa, but he was a student rather than a descendant of slaves/immigrants. Plus he was raised quite apart from the African American historical baggage. In a part of America which was probably more racially diverse than most parts. But if African Americans can get inspired by him, who are we to quibble - we are just as inspired.
What was impressive, apart from the oratory, was the immense organisational aspect of the whole process. It literally took on the establishment and overset it. That in itself portends change. Also, the multicultural experience, especially in a developing economy, is beyond the ordinary American's life.
Nobody expects the follow-through to be as dramatic, as we are all ultimately cynics. But there is still a grain of perverse hope that maybe peace, or rather less hostility, can come to the world, with this man who can turn water to wine and can part the ocean.
For India, he has no option but to engage forcefully. The nuclear deal stressed bipartisan support from the US Congress for us, and we are basically harmless souls. We are also a large market, and a low-cost producer. And we are not China.
This is a reality show that will be on air for at least the next four years, and we will all be watching.

TOO LITTLE, although not too late

The official economic cognoscenti is patting itself on the back - with the delirious momentum of the international financial crisis going on, at least our policy-makers took some decisions. No more can people fault them for slow or even non-existent reactions. They woke up, smelt the smoke, and took rapid measures to douse the fire. Thus RBI cut the repo rate, slashed CRR and lowered SLR, flushing Rs 100000 crores into the system. Great.
A great article recently pointed out that while some commentators were felicitating previous RBI governor Reddy for his cautious approach, others were talking about the reforms that India's financial system still needs. The latter seem keen to fix on a conventional inflation-management regime for the central bank, and let the rupee take its own course. Both approaches are flawed. A cautious approach may protect us from financial ills elsewhere in the world - and it may be noted that such crises arise once every decade or so in different parts of the world - but it ultimately rebounds on the entire economy as savings and investments are not properly matched, and financial inclusion and integration with the world remain distant.
At the same time, India's central bank cannot remain a single-agenda manager and control only inflation. This is not a perfect world. India is a developing country, and conventional monetary mechanics of developed economies should not be ritually applied here. Rupee management is a must, considering that so much of India's competitiveness depends on it. If China had really allowed its currency to float - I mean, less than 10% in three years! does anybody still think it is a float? - it would not be vying for the post of top exporter. The damage the yuan has done over the past ten years will only be analysed in economic history books. Meanwhile, America is bankrupt, other developing economies are happy enough to export low value-added items to China, and everyone is worried about the future.
There is immense room for further interest rate cuts, if only to make Indian industry more competitive. It might help restore some demand, and prevent job loss. RBI needs to take drastic measures to deal with the drastic situation.