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Capital Grapevine   
Capital Matters

Capital Grapevine   

Virendra Kapoor

Swadeshi and statist mindsets will hold back economic reforms and growth

Am I alone in thinking that the economy has become the step sister of politics, receiving little or no attention from the rulers until it feels obliged to cry out aloud for help? I think so. Until they all, one by one, began to revise down their projections of growth for the current financial year, even a section of news media which ostensibly specializes in economic affairs was happy harping on corporates and related stories. But the Bank-Fund putting its stamp on slowdown made them realize the crisis at the door.

Despite a series of rate-cuts by the central bank, and the panicky reductions in corporate tax by a Finance Minister who can certainly do with better outside advice, the slowdown seems irreversible. It cannot be talked into changing course, however glib the talker. Economic realities respond to fundamentals not occasional tinkering and reactive rate-cuts and policy somersaults. Even winning Maharashtra and Haryana Assembly polls will not make a jot’s difference to the growth trajectory unless policy- makers take drastic steps to rev up the economic engine.

Consider the facts. In the July Budget, Nirmala Seetharaman set a target of 12 percent nominal growth. Assuming the rate of inflation to be four percent, the real expansion was projected at eight percent. An optimistic target but doable provided other factors remained benign. Her maiden Budget proved a huge disappointment, dampening further the sentiment and leaving markets and corporate boardrooms in a blue funk, considering they were yet to get a grip on the on-going fallout of the huge NPA crisis. Corporate balance-sheets were highly leveraged, the bankruptcy proceedings against marquee names had cast a long shadow over the entire economic landscape, especially when hardly anyone was free from the taint of diverting borrowed billions into private pockets.

However, the penny dropped when growth slumped to five percent in the first quarter of the current financial year. Now, they all, including the RBI, rushed to revisit their earlier projections of seven or near-seven percent growth. The central bank lowered it to 6.1 percent from 6.9 percent. The World Bank and IMF followed suit. The IMF reduced it by a good 0.9 percent to 6.1 percent. Earlier the Bank had pared it by as much as 1.5 to six percent. The well-known ratings agency, Moody’s, pegged it still lower at 5.8 percent.

Cyclical and global factors alone were not enough to explain the slowdown. At best, most economists reckoned, the Euro Zone crisis, the British and Japanese slowdown, the on-going US-China trade war could shave off an overall 0. 5 percent from global expansion. Domestic reasons mainly would account for the slide in growth.

Even while realizing the enormity of the legacy issues, such as the NPA crisis resulting from the broad daylight loot of the banks during the UPA-II, it was expected that the Modi Government in its sixth uninterrupted year would have overcome this big hurdle to growth. ( But how deep-seated was the Manmohannomics nobody could fathom. It was ironic, therefore, that the hapless depositors of the PMC Bank should approach the former prime minister, given that he, more than anyone else, was singly responsible for the sector-wide bank heist which left the public exchequer poorer by over Rs. ten lakh crores.) As a result, flow of funds to the commercial sector has sharply declined. Between April and mid-September, it was a mere Rs. 90,995 crores as against Rs. 7,36,087 crores in the same period last year. It confirms in no uncertain terms the general slowdown in fresh demand for credit. But the time for finger-pointing is over. Owning up responsibility for the slowing economy is unavoidable for the Modi Government.

Wrong-headed economic policies informed by an inherent statist mindset at the top are clearly to blame. An example of policy confusion and indecisiveness is the continuing foot-dragging on Air India which has unfailingly bled the taxpayers to the tune of about Rs. 5,000 crores annually for decades now. The fact is that despite setting itself a target of realizing over Rupees one lakh crores from sell-offs, the top policy-makers in principle remain unconvinced about selling off so-called public jewels. A Swadeshi and statist mindset holds back policy-makers from pressing ahead with structural reforms and a further opening-up of the economy.

While constantly enlarging the entitlement basket to cover more and more people and to offer more and more freebies, little thought seems to be given to the shrinking public purse. The slowdown is bound to impair the GST collections, making it harder for meeting the fiscal targets. Even if keeping the deficit within the budgeted limits was no longer sacrosanct – and there were pundits arguing for further opening of the purse regardless of the pressure on fisc, the fact that Nitin Gadkari’s infrastructure spend in Modi-2.0 is feeling the budget-pinch, the fact that the States have accumulated a sizable deficit of their own, it leaves little wiggle room for Seetharaman to expand the basket of freebies. Thus, there is no escape from reviving the dormant animal spirits of the entrepreneurs.

But not by tinkering. No. You need to be as bold a decision-maker in the economic sphere as you were in the political sphere when you gave Article 370 an open and most public burial. Take on the vested interests in the trade unions and free up the labour markets. Labour reforms are crucial to incentivize the small-and-middle sector manufacturing, say, in the readymade and leather export industries. Undoing the mischief of the UPA era on land acquisition to make it even-handed between owners and acquirers of land for industry and commerce, for infrastructure and other public purposes ought to be a priority.

When Modi first assumed power he undertook to change the amended law in order to make it just and fair to both land owners and land acquirers, essentially the State-owned entities, but a silly jibe by the perennially maturing 47-year-old Rahul Gandhi about `suit-boot ki sarkar’ derailed him from the right track. Now, he has the numbers and, six years later, Rahul is still growing up, therefore he should pick up the thread and push ahead with both labour and land reforms. The sputtering economic engine needs to make up for the lost momentum earlier in this financial and then go on to attain at least seven percent growth in the next financial year. But all the available evidence points to the absence of conviction about further structural reforms. The government will try and take small but insignificant steps to boost economic expansion but to no avail. Even a six percent growth in the current financial year looks hard to achieve, given that the first quarter recorded a mere five percent.

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A white lie on Article 370

They wheel out Manmohan Singh to try and get some traction, considering how low the stock of the party has fallen. Given that Singh had presided over what was easily the most corrupt government in free India, even his words are taken with more than a pinch of salt. Staring at defeat in the Assembly poll, the other day they made Singh claim in Mumbai that the Congress did not vote against the deletion of Article 370. This was a lie. Not only did it frontally oppose the deletion of Article 370 but voted against the Bill in the Lok Sabha. Or take the belated effort to soften the Congress hostility towards Veer Savarkar. A number of senior Congress leaders, who had hurled unprintable abuse against Savarkar, had vehemently opposed the renaming of the Port Blair airport after Savarkar. But in its hour of defeat, the Congress is chanting a different tune, embracing the Sangh parivar totems for survival.

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Fake News

Apparently, about a hundred prominent citizens of Delhi written an open letter to Chief Minister Arvind Kejriwal to stop wasting crores of taxpayers money on full-page ads. “… you can rest assured we will vote for you, but , please… please…, do not waste this precious money… instead spend it on actually building class rooms, better roads, etc.” Meanwhile, we hope the ad blitz is not enriching the middlemen or ad agencies who act as an interface between the Delhi Government and the media outlets. Amen.