Make in India spoilt by persistent low manufacturing inflation

A Copy of this appeared in Financial Express on 12-03-2018. Link: http://www.financialexpress.com/opinion/make-in-india-delivery-patchy-heres-why-rethinking-is-needed/1094828/

V Kumaraswamy

Make in India is one of the key cornerstones of the current government to raise growth rates and create employment. It has been almost 4 years since the Make in India was launched with much hope and fanfare. The Government has initiated several useful steps and reforms to actualise it. The most recent upgrade in credit rating and 30-odd points jump in Ease of Doing Business will get us some mileage.

But it is clear that the delivery of Make in India is rather patchy. Several reasons have been advanced for its lacklustre show – highly overvalued currency, unfavourable ASEAN FTA, tight and unyielding monetary policies, very high real interest rates, high logistics costs etc. All of them have a degree of truth.

But it has to be recognised that beyond all these, an entrepreneur or corporate will invest only if they get remunerative prices returns are competitive to what the other sectors yield. This last aspect has not been addressed at all by the Government or inflation conscience keepers. Had this single factor been corrected, Make in India would have had a far better report card to show.

Nature of Indian Manufacture

Indian manufacturing is not high tech where heavy engineering, high end electronics, aircraft and space crafts, ship building etc. dominate. It is relatively low to medium grade in its maturity. It has a heavy dominance by industries which prepare or convert produce from agriculture for domestic consumption.

To give a few examples: Textile sector (the biggest industry by employment) is dependent on agriculture for cotton supplies and silk which can account for about 60% of final product costs, Sugar industry on sugarcane, Cigarette on tobacco, Beedi industry on Tendu leaves and tobacco, Vegetable/ cooking oil industry on sunflowers, groundnut, sesame, Food processing industry on wheat, maize, fruits, fish, poultry and Dairy industry on milk. Roughly 40-45% of Indian manufacturing sector depend on agricultural for their inputs. And a few more for inputs from Mining.

It is important to maintain a balance between input and output prices in these sectors and they should ideally move in tandem, if the manufacturing sector has to stay attractive for investments.  In India since agriculture feeds industry and industrial final goods are sold to those in rural and agriculture areas, any persistent imbalance could hurt both.

Our Manufacturing Prices are down 41% since 2004-05 in relative terms.

Terms of trade in international trade means the prices a country gets for its basket of export goods versus what it pays for its imports and how the relative price moves over a period of time. In domestic trade it means how the prices which a sector gets for its output moves in relation to the prices it pays for its inputs from other sectors.

From 2004-5, the terms of trade have been relentlessly moving against Manufacturing. If the manufacturing sector has had to pay 165% more for its key inputs from agricultural sector, it has been able to recover just about 57% from its customers. If Agricultural input prices are taken as the base, the manufacturing sector is getting nearly 41% less today for what it sells to other sectors compared to what it pays for agri inputs. (see Chart)

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At one level it helps transfer of income from non agriculture sectors to rural and agriculture sector and thus corrects income skewedness. But a consistent increase of this magnitude has continuously eroded the margins of the manufacturing sector to unattractive and unsustainable levels leading to lack of enthusiasm in investing.

Reasons

Year on year for almost a decade and half, Agri inflation has been more than parity. This has come about by steep and arbitrary increases in Minimum Support Prices (MSP) announced by the Centre for many crops, especially in 2009-10, 10-11, 12-13 and 13-14 possibly due to electoral compulsions (see Table). Although MSPs are restricted to certain crops, farmers tend to gravitate towards higher MSP yielding crops till the yield per hectare for other crops equalises with those under MSP. Thus MSPs impact transmits with a lag on other crops as well. One has witnessed a similar phenomenon in rural wages consequent upon implementation of NREGA.

On the other hand,  ASEAN FTA agreement has more or less put an effective ceiling on the prices that manufacturing can recover for its end products. Free trade has more or less made recovering cost inflation through domestic price increases an impossibility over the years. India’s over-valued currency has played a spoil sport on top of these.

Need for Correction

India’s growth story to continue requires Indian manufacturing to expand and diversify and create employment for those released from rural and agri sector. As the sector saddled with the responsibility of creating jobs for those entering the market, it should be the one which is relatively more attractive. Unfortunately, things are exactly the opposite for the last decade and a half relentlessly.

Ease of doing business can contribute to encourage entrepreneur by making the state machinery less intimidating but it cannot alter the base investment arithmetic of Return on Investments (ROIs).

Year Wise Inflation for Mfg and Agri Products                     (2004-05 = 100)
Year Mfg Inflation Agri Inflation Agri Inflation / Mfg Inflation
2005-06 2.4% 3.4% 140.3%
2006-07 5.7% 8.8% 155.4%
2007-08 4.8% 8.0% 167.0%
2008-09 6.2% 9.9% 160.9%
2009-10 2.2% 13.1% 589.6%
2010-11 5.7% 17.0% 297.9%
2011-12 7.3% 7.8% 107.6%
2012-13 5.4% 10.0% 185.5%
2013-14 3.0% 11.2% 370.7%
2014-15 2.4% 4.7% 195.8%
2015-16 -1.1% 3.4% NA
2016-17 2.6% 5.0% 195.0%

 

The approach announced in the recent Budget for MSP fixation might lend stability and certainty. If the MSPs are linked to the input prices which should include manufactured items like fertilisers, pesticides, seeds, etc. the inflation of manufactured products would have a decisive say in the agri inflation and hence MSPs. They would get inter locked.

Details are awaited on the exact scheme. Even if a margin of 50% is built in (which should take care of imputed interest, rent and profit besides inflation of inputs), it would build some parity and hence rein in persistent deterioration of adverse terms of trade against manufacturing.

Even so the heavy backlog built up since 2004-05 would need to be corrected if manufacturing is to see green shoots again. The States also should have a say in the future FTAs; they should have a choice of what industries and products to offer for free imports and what products to seek exemption from our overseas importers. States should also have a say in the fixation of MSPs.

A Rebalancing Budget – bottom up from the poorman’s kitchen

An edited version of the article appeared in Financial Express on Feb 21. Link:

http://www.financialexpress.com/budget/how-this-years-union-budget-reflects-a-great-grip-on-and-an-understanding-of-the-poor-mans-budget/1073485
This is perhaps the Budget with the widest sweep since independence – in terms of the % of people whose lives it will impact: mostly positively. Our budget pre or post reforms have shown excessive focus on industries, stock markets, and standard deductions and personal investment incentives for the salaried class. Not many of them would have had an impact on more than 20% of the people.Budgets have mostly been elitist; the economists’ macro sense stopped with fiscal deficits and growth numbers and hardly cared of how benefits were delievered at the door step of the common or poorer man.
Budget – a link in the chain: Poverty and what is being done within and outside budget.
The problems of the poor are (i) low incomes and (ii) high variability even in that limited income, and (iii) very high interest rates which kills all commercial ventures by them.
The Government has announced a MSP pricing formula, which will hopefully push more incomes into rural areas more systematically. Gas connections and proposal to buy surplus electricity from solar sytems will add to their comfort and income. Healthcare in rural areas will also create good employment and enterprise opportunities. And as Dr Devi Shetty (of Narayana Health) points out (TOI, Feb 1), there is great opportunity for paramedics and nurses with 2-3 years’ education after 10th and 12th capable of creating jobs for 5 million of them. This budget will create the demand for such services. If only we had tackled healthcare first thing after independence, may be even population would have stabilised by now.
In the last 2-3 years, the Government has tried to substantially tame the volatility in rural incomes. Crop insurance has already increased significantly -may be to 40% of farm produce during current year from negligible levels 3 years before. Life insurance of 2 lacs (for Rs 12) is already taking effect. The Budget has laid out a blue print for tackling the next most significant reason for debt trap of poor – health emergencies. With these the variability of poor family’s cash flows will come down sharply over time..
GST is formalising the economy. A more formalised economy widens the reach of cheaper formal credit from Banks. This can in turn bring down the interest rates facing the poor. It will come down from 750 – 1000% (the interest rates facing pushcart vendors according to RBI ex-Governor Dr Subba Rao. Page 266, Who Moved My Interest Rates) to a more sanguine number. Imagine what can be achieved if the costs for them comes down to 30-40% per annum which is what a Rs 3 lac crores additonal allocation and Mudra initiative, direct delivery mechanisms, Aadhar authenticated loans, Jan Dhan, etc. can achieve. Entrepreneurship can bloom in rural areas.
The Government has to work on a few more things. One is animal health, which also throws rural poor into debt traps. Agri productivity has been increasing year on year by 2-3 % on average but bumper crops only play spoil sport due to high price elasticity. MSP helps, but food-processing and exports are the real solutions.

Rebalancing gains and losses

The Government’s actions in the last 18 months is fundamentally re-balancing the economy – bringing in large sections into the formal fold by GST, DBT, Jan Dhans and Digitisation, into the tax net (both direct and indirect), and in the manner of intervening into poor households’ family budgets and welfare and most importantly bringing in the rural sector to mainstream economy. This is happening at a rapid pace and is bound to throw up some gainers and some losers. It is but inevitable that the rich 1% who are garnering 73% of annual incremental wealth (Oxfam) will lose to the balance 99% who garner a measly 27% of the wealth as of now.
But this rebalancing will also open up great opportunities. Even if it is just a transfer of wealth and income from rich to poor, since the marginal propensity to consume (MPS) of the tranferee poor is 90-100%, instead of the 50-60% of the rich, it will still create conditions ideal for consumption led growth.
Those who doubt the growth potential of the budget are missing the long term potential. Our consumption base is far too low. Its only the top 20% of population (income wise) who count for anything. When the penetration level of a basic hygiene item like sanitary pads is as low as 17% and that of adult diapers in low single digit, there is a compelling need to expand the base. This budget kickstarts the cycle. Better incomes at rural and urban poor levels will enable better FMCG growth in the immediate 2-3 years. Healthcare products and services will follow suit and create significant opportunites in the ensuing 6-7 years. Without this expansion, our growth would have been slave to a minuscule % of population which it has been so far during reforms.

Critics and their failure to see opportunities

A persistent fiscal deficit of over 4-6% (see accompanying table) seemed alright to tackle the global meltdown whose effect on India proved to be marginal, but a marginal slippage while effecting very fundamental structural changes seems unpardonable. How myopic and hippocritical!.
Fiscal Deficit as % GDP
Year        %
2007-08 2.5
2008-09 6.0
2009-10 6.5
2010-11 4.8
2011-12 5.9
2012-13 4.9
2013-14 4.5
2014-15 4.1
2015-16 3.9
2016-17 3.5
2017-18 3.5
Source: Economic Surveys

Little do those who lament lack of tax cuts appreciate that their economic efforts are rewarded by the society by higher incomes and wealth. The nation has given them access to market and the consumption basket and they need to pay or this access. Without this access, their wealth can never come about – it is two way transaction. Its sad that so much noise is being made about LTCG, when a retired pensioner cannot index his interest incomes and pay tax only on real interest rates.
Of course some of the initiatives will take 7-8 years to clear the cobwebs of culture, habits and bureaucracy to take full effect.

This budget reflects a great grip and understanding of the poorman’s budget and constraints on his reaching ‘escape velocity’ out of his hunger and poverty. It has constructed a national budget from the common man’s – women and men – kitchen upwards and each of his budget line items, so that inclusion of various kinds, delivery of programmes, poverty and hunger removal become integrated with budget making.

The usual commentators including the economic fraternity have scarcely picked up the fundamental directional shifts. They have dusted and delivered the same old cribs. In Cricketese, they are playing hook shots to yorkers because that is the only one they know.

(The writer is CFO JK Paper and Author of Making Growth Happen in India)

 

 

 

 

 

 

 

 

 

Shape of Economy – Interview with CFO Magazine

 

V Kumaraswamy, CFO, JK Paper Ltd says the new indirect tax law will bring rural economy into the formal fold and, thus, help create an inclusive economy

Vietnam’s Sensible Communism Vs India’s Dysfunctional Democracy

Vietnam’s Sensible Communism Vs India’s Dysfunctional Democracy

I started following Vietnam with my 1st visit to that country. Brief comparison of Per capita income (current $) with India between then and now is below:

  2007 2016 % growth
India 1081 1850 71%
Vietnam 920 2306 151%

I would attribute Vietnam’s faster progress to the following:

Respect for the government,

Fear/respect for law,

Better road discipline and public order,

Its sensible and sensitive communism,

Pragmatic Economic planning and policies – no dogmas and every regulator is sub-ordinate to the government, and

Focus on a select few industries.

I am not sure if our Democratic rights is worth this kind of price (if indeed the difference is due to this factor). I would largely prefer getting rid of our poverty first before aspects of freedom we are supposed to be enjoying.  As a nation we spend so much to elect our representatives but tether them in every which way and make them as constrained, dysfunctional and impotent as possible. The judiciary, NGT, Johnny-come-lately Regulators, Independent Monetary agencies, NGOs, PILs, and of course the Opposition and the media which is answerable to none all play their part to this collective coma and inertia.

And of course ‘We the People’. We are perhaps the most argumentative and critical people on planet Earth. We mistakenly celebrate a right to abuse as right to criticise. I would think criticism to be constructive should exhibit the following characters:

  • The person being criticized should feel like listening to the point being made, whosoever makes them.
  • Having done so, he should feel like entering it into his consideration set.
  • And if he does accept, he should feel like acknowledging it publically.

You may say I am a dreamer… but so be it.

Vietnam has not lost its energies in vague policies and utopian and unpragmatic copycat controls like tight monetary and fiscal policies, demo, or swatch bharat, digitisation, corruption eradication, ease of doing business, etc. It just focussed on 4-5 industries where it had /developed cost competitiveness.

Like Textiles, Electronics, Tourism, Wood plantation, select spices. It reversed the conventional approach of economists and started at the delivery end. Wood plantation created 2 million jobs in remote rural areas, in textiles it zoomed past India in just 7 years (its current output of textiles is capable of generating 2.2 cr jobs by India’s standards of mechanisation) much of which has come at the expense of India’s unpragmatic approach in textiles…nose to the ground politicians engaged in job creating in select few industries.

I personally feel that we have more to learn from Vietnam (or South Korea, China, or Taiwan) than the stupid West (I mean West is not stupid, we are… in aping them) as far as it concerns Economics of development and salvation from Poverty.

I would think that PILs should be asked to prove their Public interest character. They should be made to submit signatures of at least 1000 people or 1% (some such thing), who shall be made to deposit a bond of Rs 1000 each. Select few should be called to testify in the Court. The lead sponsor should be made to deposit 10% of the likely damage being suffered by the Society (or some lumpsum amount which can be a % of what the Government alleges is the cost of delaying). This should be forfeited if the case is not admitted or dismissed.

I would also think an independent body should verify the proofs of news and broadcasts by Media and if found insufficient, the concerned channel should be made to show blackout of related programmes for 3 days. Unbridled criticism in our society has only been an invitation to chaos.

(the picture shows the Visiting Dy PM – HE Pham Binh Minh).

Singapores Economic Woes

20170422_205041.jpg

Singapore’s Economic Recession

Singapore has been a powerhouse of economic growth and icon of modernity and innovation in the East.  As recounted by everyone I met, it has been in recession for the last two years. One of the foremost and lead sectors of services is the oil drilling and exploration, oil rigs, and transportation of cargo.  These have been sluggish of late and seem to have affected Singapore also significantly. The sector has seen staff shedding of significant numbers as a result. As a result other service providers to them like legal services, audit services, banking, etc have shrunk a bit – may be quite a bit and have had to down size some staff themselves.

A significant amount of investments by outsiders into Singapore was in real estate. This has caused the real estate prices to climb up steadily. In the recent years native Singaporeans have complained of unaffordable real estate prices and living costs. The minimum house price for a middle class is about SG$ 1 million. They have contended that it is not possible to support such a capital cost/debt on a salary of SG$ 6,000 – 8,000 average salaries and started migrating out of Singapore to Australia and elsewhere.  To tame it down or reverse this, the Govt has put a 15% stamp duty – to discourage runaway property prices due to purchase  by outsiders. This in order to help the ‘locals’. Due to this extreme measure (this must now be the highest stamp duty anywhere in the world), the outsiders have virtually stopped brining in investments.  And construction industry ahs seen a steep slow down and large layoffs.

Added to this, Singapore has signed off on Fatca and other money laundering agreements spearheaded by US. As a result of tight monitoring and policing and KYC requirement, the funds that were managed for private wealth clients out of a liberal and efficient Singapore have seen a steep decline. And this has led to layoffs in this sector of high salaries curbing further their spends.

‘Singa’pore is a highly dynamic and innovative society. You can’t keep it caged for far too long. I understand that the DyPM who was handling economic affairs so far has handed over to someone else (i forget the name) to put back the economy on rails. And his mentor is Dr Y V Reddy who commands a high respect there – RBI for the way it has handled several world- wide crisis 1997 East Asia, 2002 internet bubble and 2008 by their conservative approach is respected the highest by Singapore Monetary authorities I was told by at least 3.

It will be interesting to see how they bounce back. I am sure there will be some lessons for all the rest.

It stands to reason the first thing to be hit in a recession will be the discretionary expenditure. Usually when i walk from my usual Hotel Park Royal to Komala Vilas, MTR, Ananda Bhavan etc – all within 100-300 meters for my dinner, i will hear the blaring music belching out of many Music clubs and Dance bars – Hollywood songs, bollywood songs, Tamil, Hindi, etc. But this time there was just a solitary one. I am sure one day the magazineEconomist will develop a Karaoke index to measure the level of economic activity a la the Big Mac index.   Or use the level of vouyeuristic activities to measure the Economy. 

 

Demonetisation Lessons from Brazil

An edited version of this article appeared in Financial Express today. Link: http://www.financialexpress.com/opinion/note-ban-lesson-from-brazil-best-way-to-demonetise-is-not-to-have-one/472432/

Public policies are best when a lot of reason goes into their formulation and passion into their implementation.Those looking for an effective recipe for formulation could learn a lot from Brazil. It has demonetised its currency 8 times since 1942 and thrice simply knocked off the last 3 digits of its currency overnight i.e. like a 10,000 Cruzeiro (then Brazilian currency) will be 10 Cruzeiro from next day morning.

Lessons from 1830s to 1942.

Even before from 1830s it has been compelled to experiment with its currency due to evolving politics. The early experiments are to do with metallic convertible bases like silver and gold, metallic copper coins, birth of parallel paper money,  etc.

In early 1830s in order to stabilise the external value of Mil-Reis (then currency), the centre starved supply of currencies reducing the circulation of copper coins in the provinces. The provinces responded by issuing their own notes to neutralise demonetisation. Promissory Notes issued by Commercial banks valid for 15 days by law began to be accepted far beyond their due dates. (Source: Page 39-43,  Monetary Statecraft in Brazil: 1808–2014, Kurt Mettenheim)

Some other time commercial banks were allowed to issue bank notes (like in Hong Kong where currencies were issued by Standard Chartered and HSBC till accession). This led to loss of control of central authority and dilution of monetary policies.

Brazil through its history has clearly proved that no one can ‘starve’ the people of currency for far too long.

1942-1994

This period was mostly about high government expenditure, unbridled fiscal gaps and high inflation. Brazil demonetised 8 times before the last one in 1994.

It has had to change its currency, the ultimate form of demonetization for every conceivable reason – to tackle black money (Indian objective), to tackle hyper inflation, tackle daily cumulating interest rates of 3% (which is nearly 50,000% p.a.), base erosion, commodity price volatilities especially in Copper or just to avoid confusion (if Brazil had retained its currency same as in 1942, it would be 1 US $ =  2750 followed by 18 zeros, a nightmare for the accountants). They have been far deeper than t he Indian type demonetisation – the entire spectrum was replaced and the currency itself renamed.

The last in 1994.

The most recent in 1994 seemed Quixotic. It was aimed more at breaking the psychology of inflation. With 100% inflation consistently for 14 preceding  years (in 4 years over 1000%), shops had to revise prices 3 times everyday. That is when the government decided to use two currencies simultaneously – one virtual for counting the real value of currency and another for payments and settlement – and every shop having to display its prices in both and revise it 3 times a day.

But unexpectedly, people started anchoring their values against the real value (which was set near 1 Real Value unit = 1 US$).  Within a quarter or so, it was clear people were not rushing any longer to shops to avoid their currency buying less than when they started from home. Inflation abated and the real value became the Real the official unit. It was perhaps one of its most successful experiments that has lasted till date.

Lessons from Brazil

People will seek ways to settle transactions in the most cost and effort efficient ways. For many transactions in much of India, using currencies across the counter is still the most efficient option. In 1970s and 80s, when there was a coin shortage of sorts,  Chintamani co-operative superstore in Coimbatore used to issue their own tokens. These slowly gained acceptance with public so much so that even government owned busses and offices used them.

The parallel systems will start issuing notes and IOUs which will be strictly ‘enforced’ amongst its members through extra legal authorities.

One thing Brazil has always got right (between 1942-1994) is to have the 1,2,5,10,20,50,100 note sequence – considered the most friendly from transaction settlement point of view.

Currencies are as much about psychology and convenience as values for accounting and transaction, as the 1994 experiment so decisively proved.

The best way to demonetise is not to have one – avoid inflation, avoid unjustifiable or un-implementable tax systems, and not to issue too much of it anyway. Brazil has about 3% as currency/GDP whereas India’s is11-12%. Government should have incentivised and reduced it by 1% every year rather than force it in one lump.

A parade of demonetisations has not exactly curbed either parallel economy or corruption in Brazil. Corruption and black money is so rampant, their President was recently impeached for corruption, their biggest real estate tycoon is behind bars and may have to spend the rest of life there if not politically rescued.

Why black money or parallel economy, there is a near parallel administration being run by the mafia through drugs, extortion, violent thefts (one murder every 10 minutes i.e 140 a day, down of course from 600 a day not so long ago), etc. none of which will be happening through tax paid cheque money transfers.

Conclusion

In summary Brazil offers 3 ground rules (perhaps not with successful examples as much as negative narratives):

  • the way to tame inflation is not periodic demonetisations but curb state populism,
  • the way to curb black money and illegal economy is not starving people of cash but well thought out tax policies and effective punishments, and
  • the way to protect free trade from causing domestic unemployment problems is to maintain the external value of the currency which in turn is achieved by restricting external capital inflows to just what is required for financing current account deficits. (Donald V Coes, Macro Economic Policies and Growth in Brazil, 1964-90)

One would definitely give credit to both the government and RBI for curbing state populism within FRBMs. But given the levels of corruption in tax collection systems itself, black money curbing through demonetisation seems an ill fitting solution. Unemployment is rampant and growing due perhaps to highly overvalued Rupee and extra terrestrial real interest rates.

The daily dose of RBI circulars does indicate that someone is extremely alert at the wheel but whether he knows the destination and if it will deliver enough gains for the pains people are experiencing, time alone will tell.

The writer is CFO and author of ‘Making Growth Happen in India’ (Sage Publications)

Modi’s 500/1000 move may have sent him to stratosphere; but he has to be more convincing

 

I have a slightly negative view on the likely impact of demonetisation more especially the proportion of people who have to undergo the pain for catching a few (may be less than 1%) errants. In many cases the Govt may also know who those politicians/individuals are. So spoke to several people (besides several corporate types during the course of meetings) to gauge the mood; lucky I have not gotten beaten up yet.

First a Kaamwali (she wasn’t all that specific except that mentioned that she has just got Diwali bonus), a Receptionist in Mumbai at one the largest cement firms (she was inconvenienced but said that she supported Modi since it is required for the nation), an Old and frail Tamilian lady who needed some help with Kiosk check in, and my driver for the day. He with a bit of glee and satisfaction said “I had only Rs 3000 which I will exchange”. “Is it required? Do you support it?”. “Yes He has fixed all those **** (reference to some community). They have been asking for it, crooks. They were hoarding so much black money”.

A slightly serious looking Security staff who frisks you at Airport at CS in Mumbai.  When I opened the topic he was cross with me and put his finger on his lips to ask me to shut up. I trailed off with Modi’s name. His outlook took an about turn and asked in utter curiousness ‘Kya Kya Kya?’

I said Rs 500/1000. … he: yes yes. Me : Do u support it. Him: Yes sir.

Me: Why? Aren’t you inconvenienced?’

Him: ‘Yes sir. But that’s little’.

Me: So you can bear it.

Him: There is Hope sir now. I will bear it. His mouth was quivering. I was expecting an English response I was not prepared for an emotional response. I just patted him and said “great man Keep it up” and moved on.

 

2 jet pilots flying off duty. “Sir I can hope to buy a house now. They used to be asking so much cash… where will i go for that kind of cash. We support it”.

My next victim was a 5th std Master Kavya studying  in Singapore Public School in Dahisar seated next to me. Slightly on the studious side but very eloquent and fluent for his age. I took his mothers permission to talk to him for a few minutes.

He would have liked Clinton to come back, since she would have succeeded Obama who is a great friend of Modi. He likes Modi because he is the one to start Swatch Bharat which will clean up India.  They debated the effect of Rs500/1000 in the school.  The teacher briefed them on what ‘black money’ is. They had concluded that black money is not a fair system that some people bear and some people go free, it is cheating. He said that his parents would be greatly inconvenienced but still he supported Modi wholeheartedly.  ‘Its required for the Nation’. Views were erudite but he made his point in a manner befitting his age.

 

I was zipping thru most of Delhi and India Gate at 9.45 which was deserted like someone had announced that a nuclear bomb is going to be dropped there in an hour’s time. ‘Aaj Kya hai?’ I asked the Mega cab driver. ‘Logoan ke pass paise nahi hai’ he refrained. I thought I had at last found an ally and started a conversation. But he was more than a fan of Modi; he almost looked an appendage to him. Next 15 minutes he gave me a lecture on how Modi is good and how what he does is good and how it will benefit in the long run. I had no choice as his captive audience.

 

With 6 -7 others also, Modi seem to have scored a perfect 10 with this move – somewhat surprising for a debative society…he has managed to whip up a frenzy to ecstasy in support of his action. ‘Sock those Black Money B***ds’ seems to be the mood.

 

I did not expect such a one sided view from lower /middle income people.  So when I write this piece i know I’m in a minority. But still i present my sour grapes.

 

And Now the Sour Grape

Someone asked Deng Xio Ping the architect of Chinese reforms, on the 200th anniversary of French Revolution as to what its impact on Democracy was? He replied, ‘Too Early to Tell’. My instinctive reaction is to reserve my judgment on this recent chest thumping by Modi fans on his recent salvo (Mandatory Disclosure : I am a Modi fan myself, except i want to temporarily suspend that status on this issue till i get convinced on the benefits of his recent action).

What has been done is bold, no doubt. His speech was more patriotic, but it needed to be convincing more than being patriotic is my opinion. He could have told the nation on how much Black money he thinks is in circulation, how much the Government aims to garner thru this action, how much Taxes the Govt hopes to get as a one-time measure and how much on a running long term basis,  how much additional growth its going to create.

Most of all how am I as an individual going to benefit for the pains imposed on me – at least in qualitative terms. I have not earned a penny with tax dodge – rather I am yet to get so many I Tax  refunds (petty though) from the Govt since 1995-96. This is a pure compliance measure; so to impute any sense of patriotism is unwarranted, i reckon.

Half way into Modi’s term, i am far less convinced about his (or rather his cabinet’s) ability to deliver on the one most important thing – growth and with it employment for the rural, youth, newly graduating. I don’t think there is even a plot or story line leave alone a convincing plan. So i am not willing to be mesmerised by side shows, however impressive. If MMS was lack of action, Modi’s cabinet seems to be lack of ideas. Growth seems to be in an anaesthetic state. Just excessive focus on a few things  alone is not enough to run the country. And he hasn’t addressed the core issues causing black money – unreasonable stamp duties and Capital gains taxes alongwith election funding… in that sense the monster will sure take rebirth and start from zero again

When some Isreali said that even they would have been proud of India’s surgical strike, sure my chest went up 560 inches. Sure he is doing a great job of whatever he is doing; but then is he doing what all needs to be done?

While resolving strictly to comply with the rules, i am tempted to suggest the following actions:

Devalue our currency also – to may be around Rs 76/$ which is its true value. Impose a 30% tax on Chinese imports citing national security interests (their actions on Brahmaputra and POK).

It will create all the jobs that our youth and country needs.

To give a sense of balance, sure Demon’n will ease inflation and hence interest rates. It will make real estate more affordable and not prone to periodic price spirals and so people may not invest in them out of desperation but only when needed and look for better alternative investments. May reduce fees and prices of sectors thriving on black money like doctors and lawyers and some professional classes. It will motivate me more to pay taxes…but that alone may not convince the 99% abiding citizens to strain themselves (i thought so… but quick survey exposed my hollowness) to facilitate the government to catch the errant few.

With some serious disgust i should also mention that balanced debate seems impossible on this subject. Modi baiters throw all kinds of silly bile  … it won’t work, too draconian; what happens to A, AA, MA, BA,him, etc., will not succeed using anything from vile adjectives to heavy invectives. On the other hand Modi fans are rather obsessed – they talk as if this is the best thing that could have happened to the country since independence, this act required stature of Go… or such terms. You utter your reservations, abuse is not far away in time.

I am sorry. I am a big Modi fan myself. But i refuse to back him wholesale. I retain my right to be critical on certain issues or as in this case certain aspects of proposed action. To surrender this right of mine is an assault on reasoned debates and a vacuum of balance.

When we were descending I asked Kavya as to how he would like to be told by the teacher on any issue (i) Just be told by the teacher what to do in a stern way or (ii) she explains the matter, tells him about the risks and benefits and recommends that he acts. He didn’t hesitate to vote for 2nd option.

At last some consolation for me. Modi could have taken the convincing route than the prescriptive school teacher approach.