Monday, October 31, 2011

Mumbai businessman admits to Rs 800 crores in Swiss bank???

I have always maintained that estimates of black money held in international banking accounts have been vastly exaggerated. Today’s papers talk of IT raids on some big time industrialists and politicians – based on information received from the French Government. The raids have been going on for over two months now. One of the more interesting points in the story was the “acceptance” by a “top industrialist” from Mumbai of having a family account in HSBC, Geneva containing some Rs 800 crores.

I find this story in line with my own belief that the money actually stashed abroad is limited. Rs 800 crores looks like a lot of money to many people – but don’t forget, if it’s a top industrialist, then his/her personal wealth could be in excess of Rs 75 thousand crores or more (even if the industrialist is a much smaller “top” industrialist, his personal fortune would be in excess of Rs 10,000 crores). For someone who is this seriously rich, what is the big deal about Rs 800 crores? By the way, I am not sure if the industrialist has admitted this is “black” money (as in money stashed abroad illegally). It could very well be legit money kept internationally as per Indian rules. We’ll have to wait and see what the truth there is.

I am not the first one saying this. There is zero incentive today for any black money to lie abroad. Over the last twenty years at least, India has been on a fast track to growth. Just like the brain drain that characterized India prior to 1990 reversed itself since then, the flow of black money has also reversed its direction since liberalization began. Prior to 1990, tax rates in India were obnoxious. The highest incremental tax rate was upwards of 90% at one point in time. There was zero incentive for industrialists to keep declare their earnings. This was the main reason for corporate headhonchos to stash money abroad. Besides, opportunties to invest in India were limited. Post 1990, tax rates have been made extremely reasonable – lesser than in most developed countries. And opportunities for growth have abounded in India. It can be said with near certainty that most of the money has returned back to India. And is still returning back every single year.

The recent report by Kotak Institutional Equities is interesting in this context. It analyses the export performance of India over the last few years and finds that the export claims (official claims) are not backed up by similar numbers reported by top exporters in the country (bottom-up calculations). While engineering goods are reported officially to have grown by some 79% in the last one year (growth of some $30 billion), the figures of the top engineering exporters show growth of a much lower order (some $1.5 billion or so). The report hints that this could be a case of illegal money coming back into India in the form of exports (but is actually capital stashed abroad returning back). The report seeks some sort of clarifications for this anomaly even as it accepts that there may be other explanations for the same.

That’s why Advani’s rhetoric of asking the government to get back the black money from accounts abroad is just that….political rhetoric. There is not that much money lying abroad which can be brought back. There are certainly not lacs of crores of rupees that he talks about in his public speeches.

This is not the same as saying that black money never existed in the first place. It surely did. All this means is that the black money (whatever the quantity) has most likely already returned back to India. To that extent, the positive impact this black money supposedly stashed abroad can have on the Indian economy is limited. The positive impact has already been felt in the higher growth rates of the last 20 years.

I think we should be happy that the Income Tax authorities have mounted this investigation against tax evaders. What I quite like is that the operation started a couple of months back – outside the glare of media. It shows that when it wants to, the government machinery can work on its own. Apparently the tax authorities have already recovered some Rs 300 crores in tax penalties from those who evaded tax in the first place. Another story in the TOI says that the government appears firm about levying strict penalties on tax evaders – and could go beyond mere monetary penalties. What this indicates to me is that the government appears to have woken up to the angst in the country – created no doubt by the Anna movement – against corruption and black money. The PM promised again yesterday that the government is serious about bringing about a strong Lokpal Bill in the winter session starting Nov 22nd.

Another story in the papers indicates that while the government may want to introduce and pass many bills against corruption and associated issues – to clear the charge of inaction against it – the opposition may actually like to stall proceedings yet again – so that the pressure doesn’t ease off so quickly and easily. Ideally, they would like the matters to be delayed to closer to 2014 – so that maximum political gains can be derived. I have written in the past that the government will try and expedite all matters and the opposition delay. That may well turn out to be true….

The real truth is that there is progress happening now on several fronts. We have to be patient. And we have to appreciate good work when its done. I am told the government has signed deals with other tax havens to get more information out of them. If we can see some tangible gains happening, it will help restore some confidence back in all of us…..

Sunday, October 30, 2011

Mani Shankar Aiyer is wrong about Formula 1…..

The biggest criticism for the Formula 1 event held yesterday for the first time in India must have come from Mani Shankar Aiyer – who thought that this was all a criminal waste of money. That if the money had been deployed for helping the poor, it would have been much better used. Now, on the one hand, there is nothing wrong with what Mani has said…..all our efforts must be to help the poor. And yet, on the other hand, everything that he has said is wrong.

This same logic of “spend only on the poor” should then work against India hosting IPL matches (what is there to cheer if the center of gravity of the cricketing world has shifted to India with the IPL?); or organizing the Lady Gaga and Metallica concerts (who cares; not even 1% of Indians listen to such music); or constructing a premium residential or business tower (its just an ugly display of wealth); or India attempting to join the global biggies in the space race (we should learn to build better trains first) or any number of such ambitious programs that India is involved in. Mani may even question the reason for building such a swanky airport at Delhi, the sea-link in Mumbai and the airconditioned metro in Bangalore (and Delhi). Mani’s logic essentially is that India is one homogeneously poor country – and until the last poor man alive is bathed, fed and educated, no other program should ever be thought of. This is an extreme form of socialism and harms the country’s interests more than serving them.

It’s only a step away from out-and-out socialism and the adjunct philosophy of communism. There must be perfect division of wealth. Taxes must be kept high, so that the rich are forced to share their wealth with the poor. All activities which represent pomp and splendor must be shunned. Why, Mani may argue that there must be restrictions on what kind of houses can be constructed – anything more than 2 bedrooms being disallowed by law. The Planning Commission must control all resource allocation – the private sector anyways knows only how to make profits for itself being the logic. This is a huge move back to the 1970s when License Raj was at its peak. This is a way for politicians like Mani to gain more power back for themselves – after all, the growing clout of the private sector has made many ministers feel very feeble. Does Mani realize that if we went back to the License Raj, our growth rate would most likely plummet to the 3-5% Hindu rate of growth? Does Mani recognize the contribution made by India’s private sector?

Apart from the move back to the License Raj, what Mani fails to recognize is that we are a hugely heterogeneous country – with people having different levels of affluence, interests, aspirations and dreams. What would happen if the government’s agenda was solely to look at the issues facing the poorest of the poor? Well – noble as it may seem – this would lead to a worsening of the economic condition for the entire country – and most notably for the poor. In today’s world, it is impossible for the government to undertake all economic activity. Governments around the world – including the erstwhile proponents of communism like China and Russia – rely more and more on the private sector to create job opportunities, enhance investments and in short, lead the economic growth. If the rich were considered as undeserving, then what would stop them from migrating out of India – setting up their factories in the ever-welcoming lands of China, Vietnam or even Thailand? Already there is news that Rahul Bajaj is considering shifting his company’s manufacturing facilities from India to China. Would it be pro or anti-poor if the government made an aggressive bid to retain Bajaj’s interest in India? Is it wrong if Narendra Modi gives financial concessions to attract a Tata Nano or now a Maruti to his state? Would this amount to the government pandering to the interests of the rich? Or would it qualify as being pro-development and pro-poor?

It’s pretty much the same with the Formula 1. Agreed, there is no “practical” utility of hosting a F1 game – in the sense that if India didn’t host it, it would not make any difference materially to India. However, look at what the event does to the stature of India in the minds of people living outside. They believe that India has moved up a few notches when it comes to organizing and managing large scale projects – especially related to infrastructure. When they see such events being held in India, they see it as some sort of a certificate of “having arrived” – this in turn attracts more foreign investments into the country. The direct benefits for the tourism and hospitality sector are all well documented. But more important than those is the impact the successful hosting of the Formula 1 has on the confidence of the people in the country.

The Formula 1 is one of the effective antidotes to the negativity that has pervaded the country in the last 18 months. We are living in times when we believe that everything in India is bad. If Anna’s supporters were to be believed, everything is wrong in this country – every politician is corrupt; every government system is inefficient; every law is flawed; every public institution is politicized etc. As a nation, we lack the maturity to put the good and the bad into separate compartments. We cannot understand that both co-exist in every society. We tend to shove everything under one single compartment. A few years back, everything was good about India. FDI inflows were increasing, savings and investments were high, GDP growth was nudging 10%, all P5 leaders came calling on us, the US bent over backwards to give us the nuclear deal…..etc etc. And now, everything is bad – the inflation is too high, there is corruption everywhere, the PM is weak, no one except Anna is right etc etc. We have no appreciation for the many high points of India’s performance even today – the fast-growing GDP, the rising urban and rural income levels, the scorching exports performance, the strong domestic consumption story…..nothing at all. I look at the Formula 1 as being a mood-lifter. A feel-good event, that gives us our confidence back. After a very long time, I saw the main story on the front page of the TOI a great “sunshine” story – something that made me feel proud of my country. Something that made me hold the paper with hope and joy….

It’s this point that Mani misses. If Mani had his way, he would order all school children to only study till they got 100 out of 100 in every subject. He would fail to understand why it’s important for Jack to play at times. What I find surprising is that just a few days back, he was defending the Rs 600 crores that Mayawati spent on the creation of the fancy park in Noida, pointing out that the GOI’s budget was some Rs 7 lac crores per annum and Rs 600 crores was a small sum of money to pay if it helped to lift the pride of the dalits. This is indeed true and I supported his views then. But if that is true, then why is it not OK for the GOI to give an inaugural tax concession to the organizers of F1? How does it matter whether the event is organized by a private player or by the GOI (Ajay Maken’s statement)? In the new world, both the private sector and the public sector work together for the country’s progress. There is no case for giving incentives to the public sector while denying the same to the private sector. What should be done instead is that the discount should be limited to the first few years only – so that it works as an incentive to bring in investments. And the same rule should be applied to both public and private sectors.

In any case, today is not the day for controversies. Today is the day to celebrate the success of Formula 1 and indeed of India itself. It makes me proud that we as Indians can do as well as – if not better than – the rest of the world. In the type of times we are living in, every positive stroke is helpful. Even the most self-motivated need some external motivation – and as Indians, we’ve got our motivation from the way the F1 event was organized and executed. I salute the Jaypee Group for taking India into a different league altogether. For dreaming bigger than the politicians can. For recognizing India’s plurality of interests. And for having the courage to take on India’s complex and often enervating systems. I also salute Mayawati for having the courage to supporting something that could get her into political trouble – especially when the Congress attacks her now. Hats of to you!

The real truth is that the Formula 1 race was the best thing that’s happened to India in the last several months. I feel a certain positivity radiating through most of my urban middle-class friends. I hope this positivity spreads. I hope we stop being so self-critical. I hope we start believing a little more in ourselves. Yes we have problems, but we can overcome them. Everything is not bad in our country. Today is a day to celebrate…..let nothing come in the way of that!

Saturday, October 29, 2011

Hardly any difference between politicians and Team Anna….

All politicians talk from high moral grounds when they are out of power. Or when they are seeking to come back to power. But as soon as they are in power, they start looking selfish, corrupt and shameless. They don’t quit when they are caught. They blame others for their problems. And they claim they are being attacked by the opposition. Team Anna is looking no different now….

When the movement started, Team Anna looked like committed, honest people who had nothing personal at stake and only wanted to do good for the country by ridding it of the scourge of corruption. They spoke of lofty ideals; were “lovingly” impatient in their demands. Their wore their assumed high moral standards on their sleeves; this being one of the main reasons for people to look up to them. These high moral standards gave them the right to look down upon and chide the politicians. They were the heroes. Nothing could go wrong for them. They appeared to be “different” – the kind of leaders India should have.

Over a period of time, we are realizing that there is nothing different about them. Almost every single member of the team has been found guilty of the very same thing that they have been fighting against. Yes, guilty of corruption; if not on the same scale and in the same way as we usually think of political corruption, then of only a slightly different type….

Arvind Kejriwal hasn’t paid up his dues to the government (and indirectly therefore to us tax payers) a sum of Rs 9 lacs for not honoring the terms of his paid study leave. Yes, it was a paid leave. The government paid him his salaries for two years so that he could learn something new that would help the government. Instead, he chose to go on leave after returning back (and not resigning…..thus technically still working and serving his bond conditions). Is this not moral corruption? Surely, Kejriwal knew that the objective of the study leave (fully funded by the government) was that the country should benefit from the learnings? When he refused to join back after his study leave, did he serve the country’s interests? Where are his high moral standards when he chooses to argue his case on “technical grounds”? How different is this from ordinary politicians who find technical grounds for everything illegal that they do – to justify the use of official discretion for their personal indiscretions? Now that Kejriwal has agreed to pay up, he’s making it look like he’s doing the country a favor. Get off your high horse Mr Kejriwal. You owed this money to the country – you are doing no one any favor.

And what about the donations that Kejriwal appears to have siphoned off to his own NGO? Why could he not publish its statement of accounts before Swami Agnivesh accused him of wrongdoing? What happened to his high moral standing when for all these months, he sat on the money that came for the IAC? And how different is he from normal politicians when he accuses Swami Agnivesh of having an agenda? Isn’t that what all politicians do when they are caught? Accuse someone else…..

What about Kiran Bedi? Isn’t what she did akin to stealing? How do we know what use the extra money was put to by her NGO? How do we know Kiran Bedi hasn’t made many more trips around the country (maybe abroad too) than she could otherwise have afforded to – if she hadn’t got this extra cream? Why doesn’t she list the government of India as the biggest donor to her NGO, after she filched it of the 75% discount on air tickets? Isn’t this a form of financial corruption? And look at her reaction after she was exposed. Her first reaction was to tweet that “all money went to the NGO. Unfortunately there is no smoking gun here. I think activists have to be prepared for such mudslinging” or some such thing. This is the kind of denial every politician issues after getting nabbed. That someone is trying to wreak political vendetta against them. As a second step, she passed on the blame to her travel agent (her NGO’s trustee-member I believe) making it appear as if he was the one who was making fraud bills. Nice. And now, she’s making a big deal of offering to return the excess monies back to the conference organizers. How convenient. Isn’t that what Kalaignar TV did when Raja got arrested – return the entire Rs 200 crores that they had taken as “loan” from DB Realty? If Sharad  Kumar and Kanimozhi are in jail, why are the rules different for Kiran Bedi?

Look also at the refusal of the two to resign. How different is this from politicians who refuse to resign in spite of obvious lapses on their part. Why can’t these two resign first; get their reputations cleared through a legal process; and then re-join the movement later? Why the different standards?

Also, why do they blame the government for everything? Are they saying that the government put out the story of Kiran Bedi’s accounting creativity? Did the government start demanding that Kejriwal pay his dues only now? Did the government put words in the mouth of Prashant Bhushan regarding Kashmir – and did the government send ex-BJP goons to attack him? Did the government tell Justice Hegde, Rajinder Singh and PV Rajagopal to attack Team Anna’s decision to make the movement political? Isn’t this similar to politicians who either blame the opposition for all their troubles, or even a “foreign hand” for everything that goes wrong? We often chide the politicians that they don’t have the guts to accept their mistakes. Does Team Anna have the guts to do so?

And all of them are now trooping to Ralegaon Siddhi to meet Anna for his final decision on whether they are clean and should continue in the core committee or not. Isn’t that what every accused politician does? Go to his or her party boss to ask for a clean chit…..the public’s perception be damned?

And what about Anna? He’s sitting on a maun vrat – seeing it all from a distance – and not taking any decisive action. If Anna is “different”, I would expect him to sack at least Kejriwal and Bedi immediately. How is it ok if he condones these two tainted team members on the one hand but demands that tainted politicians quit their offices on the other? So far, Anna hasn’t commented on this matter – its time he did and showed that he indeed was “different”.

The real truth is that just as we expect clean governance from the politicians, we also expect high moral standards from Team Anna. It’s not Team Anna that is important; it’s the movement that is. If some members have failed, they should be sacked. Anna should take decisive action against these erring team members who are giving the movement a bad name. It’s time he showed who the boss was…..because otherwise the perception gaining ground is that it is Kejriwal and Bedi who are the bosses, and Anna is just an “advertising model” for the movement…..

Friday, October 28, 2011

Why blame the government for Team Anna’s mess???

Team Anna is in a mess. Its high profile members – most notably Kiran Bedi, Arvind Kejriwal and Prashant Bhushan – are in a mess. But the mess is one of their own making. Why blame the government?

Take the case of Kiran Bedi. Her fudging of travel accounts was brought out by the Indian Express. It was this newspaper that front-paged details of the various trips that Kiran Bedi made and overcharged for. It was then the Times of India that actually spoke with some conference organizers and brought out their claim that Kiran Bedi had not informed them about her scheme at all. It was only after all of this came out that people like Digvijay Singh started commenting on her; demanding that she quit. It was she who defended herself like politicians do when they are caught – rather than accepting her mistake. It was she who did not offer to quit – while that’s what she demands from politicians all the time. She was double standards personified – and she has only herself to blame for this.

Take Arvind Kejriwal. Accusations of diverting Rs 80 lacs worth of donations – meant for the India against Corruption movement – to his own NGO were not made by the government, but by former Team Anna member Swami Agnivesh. Now Swami Agnivesh may have an axe to grind – having been dropped from Anna’s team. Whatever the reasons, the muck around Kejriwal was thrown up by Swami Agnivesh, not the government. As far as the Income Tax department’s claim on Kejriwal goes, that’s many years old. What he has been served now is apparently the 5th notice. It’s not something the government mounted after the first fast of Anna in April. It’s also important to clarify that the Income Tax department was the employer of Kejriwal – hence the notice for repayment of dues has come from this department. It’s not what many lay people think – that the government has unleashed the Income Tax department to harass Kejriwal.

Take Prashant Bhushan. Now he’s been panned for all the wrong reasons. His position was compromised by his own habit of commenting on everything under the sun. It’s his Kashmir views that have gone against Anna himself and his supporters. They want him out. What’s the government got to do with this? Did they plant words in his mouth? (My own view is that I don’t agree with his Kashmir remarks – but he has the right to speak his mind nonetheless).

Take the two people who quit his team earlier on. “Waterman” Rajinder Singh and PV Rajagopal quit because they disagreed with Kejriwal’s political game. Who decided to campaign against the Congress (alone) in Hisar? Kejriwal. Who decided to support other corrupt candidates in the process? Kejriwal. That’s what’s upset so many of Team Anna’s supporters. That’s why these two team members quit. Why blame the government for the mess?

Yes, when it comes to investigating Baba Ramdev, one can say that the government was out to get him. They mounted large scale investigations against him after he tried to join Anna’s movement. But look at what the ED found – that there are huge foreign exchange violations that the Baba himself is involved in. There is an island abroad that he owns that he hasn’t reported. There are forex transactions that look like violating the laws of the land. What does all this do to his fight against black money – after he’s found to be involved in the racket himself?

Of course, Digvijay Singh has been attacking Team Anna. But then, he’s a politician and it’s his job to protect his party. At least he’s not hiding behind a smokescreen when he attacks members of Team Anna, the RSS, the BJP and many others. He is doing the same thing that the BJP is doing – playing politics. It’s also alright for the BJP to play games too – after all it’s a political party. It’s alright for the BJP to appear to support Anna from the outside, while grappling with its own contradictions from the inside. It’s alright for Advani to say that we cannot have nuclear power plants without adequate safety. Who can deny that? But that’s the kind of latitude an opposition party gets. There’s nothing wrong with it…..

What is wrong is for people like Kejriwal and Bedi to make the anti-corruption movement so personalized. When Bedi waved the tricolor at Ramlila grounds, she was trying to position herself at the center of the movement. When Bedi mocked politicians with her skit there, she should have been prepared for counter-attacks. When Kejriwal went political in Hisar, he should have expected a political fight-back. When Baba Ramdev attacked the government on black money, he should have expected to be exposed on black money himself. How can it be that Team Anna expects to attack, but expects the political class to sit back and do nothing?

Anna has to come back to the centerstage. The movement was started by him and the people look up to him for leadership. He has to sack Bedi and Kejriwal immediately. My personal view is that Prashant Bhushan must be retained (though I don’t like his style) – he does add value to the team. Anna must also tone down the vindictive rhetoric against politicians. He must shun party politics. He has to understand and appreciate Parliament’s role in law-making. He has to show responsibility in the way he leads the movement – there is no point in spewing venom at the politicians. Politicians also are members of society – they are what they are because of the kind of system we have. It’s impossible for politicians to win elections without large doses of money. That money is not available legally. They have to go illegal. Yes they are greedy too. Just the same way everyone in this country is. Like businessmen who adopt illegal means to get that extra buck. Like almost everyone in the country who twists and violates tax laws to gain that extra bit. The system needs to be cleaned – but Anna must recognize the reasons for the problem and then treat it with appropriate measures.

The real truth is that Anna’s team has let him down. Anna is often compared with Gandhiji. But Anna didn’t learn from Gandhiji how to set up a good team. A team that would finish off the nitty gritties after Gandhiji opened up the big opportunities. Anna cannot write the Lokpal bill. His team should help him do that. But in the same way, his team cannot act like visionaries. That only Anna can do. It is this misunderstanding of roles that has caused the problem. It’s important Anna and his team realize this…..

With Europe and US recovering, its time for India to get its house in order….

The European deal yesterday to cut Greek debt by half and to re-capitalize European banks (those that would take a hit on account of the deal) has led to much relief around the world. Stocks worldwide rebounded by 2-5% on the back of renewed confidence in the euro, the European economy and European leaders. The Greek deal – alongwith the data of the US economic growth (2.5% GDP growth in the Sept quarter) – could mean a lot for India. Or it could mean just another lost opportunity. It’s for us to decide what we want to make of it….

A recovery in Europe means that the nervousness plaguing foreign funds will reduce. Hopefully, if we now take decisive and bold policy actions, the funds will not only stay invested in India, but will bring in more investments into the country. Higher funds inflow will give a boost to the rupee, increase activity on the stock markets, increase investments and start a virtuous cycle of economic recovery. With the US economy also showing signs of recovery, there is a hope that a full-scale global recovery might take place. It’s impossible to be too sure of anything at this point, but at least there is some hope now. Just a little while back, it all looked like a bottomless pit.

If we have to capitalize on these favorable global conditions, we have to break out of the negativity that has gripped the country. Corruption issues have (perhaps rightly) dominated media and public discussions over the last 15-18 months. The public agitation by Anna has made sure our law makers prioritize the drafting of new laws to deal with corruption and to give confidence to the people. I am not saying that these issues should not have been raised, but its time now to get back to focusing on the economy. The cleansing of the political system has to happen alongside economic growth; not at the cost of it. The government has been making statements that it is committed to bringing a strong Lokpal bill – maybe even making it a constitutional body – and we need to give it some time now. It’s important not to let the engines of growth stop for whatever reason. It’s important that we stay focused on the global opportunity available to us – an opportunity that we cannot take for granted.

The government has to take decisive action. The winter session is going to be a test of the government’s ability to govern. It has a unique opportunity now to seize the initiative. The BJP is a little downbeat – with the corruption scam in Karnataka, the resignation of two CMs (in Karnataka and Uttarakhand), the Gujarat Lok Ayukta embarassment, the party’s obvious involvement in the cash-for-votes scam, its likely involvement in the 2G spectrum issues during its own tenure at the Center……and the internal power struggle for the PM’s job exerting pressure on the party. Even Team Anna has been a little on the receiving end from media and others on account of its internal fissures. Also, the personal integrity of Team Anna has been severely hit – and no matter what Anna supporters may say, their moral authority to kick Parliament around with another agitation is severely dented. The timing is right for the government to kickstart the legislative process – starting with the Lokpal Bill and then taking up the several other bills in the pipeline.

The Land Acquisition Bill, the new manufacturing policy, the new mining bill, the new Telecom policy, the new Whistleblower bill, the new Public procurement bill, the policy to allow FDI in multi-brand retail…..are all waiting to be cleared. If the government can ensure that these go through, it would set the stage for a renewed thrust towards economic growth.

I have argued earlier against getting too worried about the inflation numbers. Most of the inflation is coming from food articles…..and today’s story in the papers clarifies that the inflation is not in wheat, rice and pulses, but in veggies and fruits. With the onset of winter, supplies of veggies are bound to improve and that should provide relief to urban middle-class consumers. Apart from this, the urban middle-class really has no reasons to complain – their salary increases take care of any impact inflation may have on their purchasing power.

In the September quarter, top listed companies have reported healthy revenue growths – upwards of 25% as per a recent report in the papers. However, profit margins have been under pressure on account of higher input costs. The higher revenue growth indicates that demand is solid – and in spite of inflation, demand is not slacking, except in some sectors. It’s time that the RBI realized the futility of continued interest rate hikes – and reverses the practice. We need lower interest rates to encourage investments – else we’ll have a problem with GDP growth in the future. Food inflation cannot be removed by increasing benchmark rates….

As expected, worldwide commodity prices rose in an almost instantaneous reaction to the Greek debt deal. Oil prices soared and nullified all effects of a stronger rupee…..landed price in India will remain at the same levels. Likewise metal prices increased by 5% or so. The euro and almost all global currencies gained strength as the dollar’s claim to being the world’s only safe currency was hit. This has now become a pattern. Whenever there is news of a recovery, oil and commodities prices firm up. Since India is a big importer of oil, this is a no-win situation really. That’s why in terms of energy security, we have no option but to keep the nuclear power option open.

The real truth is that if we are smart, we can gain from the existing global conditions. At times, I grudge the Chinese their system of government. There is no scope for dissent there; no scope for agitations; no satyagrahas; no nothing. It’s not like there isn’t any corruption there – but in China, the sole focus of the government is on economic growth. Plus, the Chinese are extremely good with execution of projects. In contrast, in India, there is zero focus on execution. Maybe, we neeed to learn from the Chinese. Maybe, for the next 20 years, we need to cut back a little on our democratic freedom……..

Thursday, October 27, 2011

Rajat Gupta’s arrest shows many positives of the US legal system….

Rajat Gupta has been arrested on charges of insider trading in the US. He was a Director on the Boards of such iconic companies as Goldman Sachs and P&G and he allegedly passed on insider information (confidential information not available to the regular public) from these companies to his friend, Sri Lanka-born Wall Street hedge fund Galleon’s owner, Rajaratnam, who allegedly made some $60 million from the information. Rajat Gupta has been one of the most high-profile businessmen in the US – as Global Head of McKinsey for nine years, his reputation in the US was impeccable. And yet…..when the time comes for the law to act, it acts. Without fear or favor….

There are many noteworthy things that emerge from the arrest of Rajat Gupta. And before that, from the arrest of other influential business leaders like Rajaratnam and of course, Bernard Madoff in 2009.

The first noteworthy thing about the US is that irrespective of your social or economic status, the law is paramount. In the eyes of the law, Rajat Gupta is just another ordinary citizen; someone who allegedly violated the laws of the land – and possibly harmed the interests of millions of other citizens. He may know the President of the US, the topmost lawyers…..but the law doesn’t care for any of this…..

The second noteworthy thing is the speed with which action is taken. This is what Wikepedia has on Rajat’s case: On April 15, 2010, the Wall Street Journal reported that federal prosecutors in the United States were investigating Gupta's involvement in providing insider information to Galleon hedge-fund founder Raj Rajaratnam during the financial crisis,  in particular the $5 billion Berkshire Hathaway investment in Goldman Sachs at the height of the financial crisis in September, 2008. On March 1, 2011, the SEC filed an administrative civil complaint against Gupta for insider trading. On March 18, 2011 Gupta countersued the SEC (SDNY 11 Cv. 1900). In July 2011, Judge Rakoff refused to throw out the countersuit against the SEC and in August, Gupta and the SEC agreed to drop their respective actions against each other. In late September, 2011, The Wall Street Journal reported that federal prosecutors were "fully committed" to filing criminal charges and were "moving closer toward bringing" them. They had previously sparred over how, when, and whether to arrest or sue Gupta, in "a bitter dispute between federal prosecutors and securities regulators." On October 26, 2011 the United States Attorney's Office filed charges against Gupta. He was arrested in New York City by the FBI and pleaded not guilty. In just about 18 months, from the first hint of a conspiracy, the arrest was made….Rajaratnam’s trial took just 2 months. Rajat’s will also probably take just that much time. Contrast that with what happens in India!

The third noteworthy thing is that Rajat Gupta has been immediately given bail. Unlike in India, where the accused are put in jail forever (almost). This, in spite of our Supreme Court’s own policy of “bail, not jail”. In India, even the judiciary takes cognizance of the public mood and acts in response to that. It is entirely possible that Rajat Gupta is eventually proven “not guilty” and in that case, it would have been a good decision to release him on bail.

The fourth noteworthy thing is that everyone in the US fears the law. The fear of the law is such that Rajat Gupta is unlikely to try and influence any witnesses in the case. In our country, it can almost be assumed with certainty that the powerful accused will not only try and influence the witness; they will try and make the witness recant. The approach is: if it’s possible to buy the witness, but him/her out; if that doesn’t work, try some strong-arm tactics. If that doesn’t work, try and do some character assassination so as to discredit the witness; if that also doesn’t work, then it’s entirely within the realm of possibility that a witness may be bumped off. The powerful in India never lose…..the law bends to accommodate them. CEOs are arrested; not the promoters behind the companies. Not so in the US…..

The fifth noteworthy thing is that the media out there is much more mature than in India. While reporting on the case and the arrest and the trial in great detail, media in general will stop short of sensationalizing the matter. The media will not try the accused in the pages of the papers; or on prime time on TV. The media will desist from calling Rajat guilty before the trial is over; desist from building public opinion against him before the time comes. If this trial were happening in India, the person would have been assumed guilty the day he was arrested; not only that, the entire community of businessmen and professionals would be painted black by now….

The sixth noteworthy thing is that there will typically not be any stereotyping of Indians basis Rajat’s arrest. It’s not that “all Indians are corrupt; all indulge in insider trading; none of them can be trusted”…..In India, this typically happens. Rajat Gupta is just another accused and his arrest and possible conviction is not going to put any shadow of suspicion on other successful Indian CEOs.

And the last noteworthy thing that stands out is the cosmopolitan and plural nature of the US society. Rajat Gupta is being tried by Preet Bharara’s office – Preet Bharara is the US district attorney of New York – another Indian, appointed by Obama to this post. In the US, it doesn’t matter which country you come from!

The real truth is that while we may progress economically, we are still centuries away from a legal system as good as in the West. Hopefully we will one day evolve a system that will make the law paramount. A law that everyone – the accused, the media and the public at large – believes in…..

Tuesday, October 25, 2011

Increase in MSP another step in sharing wealth with the rural poor.….

In my post yesterday, I wrote about why the RBI should not worry about the inflation staying at 10%. In my view, the target for inflation itself should be re-set to 8% or so. The reason for this is that unlike usual inflation, this one is harmless. The poor are not getting hurt by it. In fact, it is a result of the poor getting more money in their hands. This inflation is not arising from conventional demand-supply mismatches. There are no bubbles here that should concern the RBI. This inflation is coming from a never-before-seen re-distribution of wealth. The rural poor are being showered with goodies and as they are prospering, they are exerting pressure on food prices. As I also argued yesterday, most urban folks are protected against this inflation by their annual salary increases.

The MSP (Minimum Support Price) is the price paid to farmers if they choose to sell their foodgrains to the government. By increasing the MSP by 15-39%, the government has tried to do two things. One, it will help the farmer offset the higher input costs – most importantly farm labor costs (which have increased due to NREGA as argued yesterday) and two, it has tried to transfer wealth into the hands of the farmers. Farmers are the new political constituency that Rahul Gandhi has taken upon himself to develop. His belief is that if farmers are happy, they will vote the Congress back to power. The one anti-dote to the wrath of the urban middle-class on corruption matters is the support of the farmers. Farmers care for more income in their hands rather than some obscure corruption charges. This is astute political strategy. And fortunately, it is also astute economic policy also.

Its good politics because farmers is a large bunch of people united together only by profession (farming). When one builds a political strategy based on farmers, one moves away from the usual divisions in society – conventional political constituencies of caste (BSP, SP, RJD, RLD, INLD….so much of Hindi heartland parties really), religion (BJP, Shiv Sena, IUML, etc) and language and regional identity (almost all Tamil parties; Shiv Sena partly etc). In pursuing a political strategy which focuses on farmers, the Congress will have a unique identity (positioning) for itself. The only parties that will compete with the Congress for this positioning are the Left parties. Given the recent poll performance of the Left – and its defunct ideology of communism – the Congress wouldn’t worry too much about the Left. The Congress has been working on farmer’s issues for some time now with new laws of Land Acquisition, Mining etc on the anvil. The likely tie-up in UP with Ajit Singh (son of “kisan leader” and former PM, Charan Singh) is also a step in this direction.

It’s good economic strategy because every economist will say that if there is better distribution of wealth, the growth of the country is a lot more stable and sure. With more number of participants in a country’s story of progress, the progress itself is that much stronger. One of the biggest criticisms about capitalism is that it leads to large economic disparities. It’s common for experts in India to complain that on the one hand, Mukesh Ambani’s house is reportedly worth Rs 4000 crores and on the other hand, there are a few hundred million people who cannot afford even the most basic form of a roof over their heads. When income is re-distributed, it will help bring the poorest sections of the society into the growth story. And make it inclusive growth, so to say.

Already, with a strong rural economy, there is a buzz around the consumer sectors. India has always been a consumption story and with more money in the hands of the farmers, the consumption story is bound to improve. Talk to investors today and they will tell you that any investment in the consumer sector is a good investment. By increasing MSP, that consumer sector is being sought to be made stronger.

In addition to being good political and economic strategies, this increase in MSP is also in line with Congress’s past thinking as well. In the six years of NDA rule (between 1998 and 2004 or so), the MSPs hardly rose. For eg, the MSP of Rice rose by 25% in six years; of wheat by 15%, of course grains by 29% and of daal (lentils) by 43% or so. In contrast, during the same period of UPA rule (six years), the MSP of rice rose by 70%, of wheat by 72%, of coarse grains by 63% and of different types of daal (arhar, moong, urad) by between 65-96%. It’s the same story with non-food crops as well. During the NDA’s six years, MSP of sugarcane increased by 39% (74% during UPA), of Cotton by 17% (UPA 53%), of groundnut by 35% (UPA 40%), of soyabean by 19% (UPA 50%) and of sunflower by 18% (UPA 65%). In spite of this, wholesale price inflation during the NDA and UPA regimes has been nearly the same at around 5%…..with the exception of 2008-9 and 2010-11 (and continuing now into 2011-12) when the inflation has been higher largely on account of NREGA (impact felt in these years though NREGA was launched around end-2005).

The RBI did go ahead and increase interest rates yet again. Again, my expectation that this will have no impact on the inflation. The strategy is wrong and it is bound to fail.

The new manufacturing policy announced by the government will hopefully get more investements flowing. We need to look out for more details before commenting on it. If it leads to more employment generation – the way manufacturing did in China – it will be a good policy. India cannot depend only on the services sector for its growth. It needs a strong manufacturing sector as well.

The real truth is that the politics of the Congress is clear. It’s target is the aam aadmi – and that does not mean people like us. It means the rural folks who depend on agriculture for their livelihood. The Congress may make symbolic gestures towards placating the urban middle-class, but its real focus always has been and will continue to remain the rural poor…..

Monday, October 24, 2011

RBI is wrong in increasing interest rates…..this inflation is harmless

The RBI is responsible – amongst many other things – for keeping a check on inflation. It has been using the same tool – raising interest rates – over and over again. In fact, it has increased interest rates some 11 times over the last 18 months. However, the RBI has totally failed in checking inflation. Rather than change its approach, it is likely to increase rates again today. It’s time that the RBI explains itself. Since the RBI Governor reports to the Finance Ministry, it is important that Pranab Mukherjee seek an explanation. It’s also important that we reset the inflation target to 8% rather than the traditional 5%. This post will explain why.

What has been the RBI’s strategy really? To squeeze credit out of the system so as to tamp down on demand. Nothing wrong with this theoretically, except that the sectors of the economy where excess demand is causing inflation, have already been tamed. There is very little inflation now in Real Estate, consumer durables or automobiles which are interest rate dependent. By increasing interest rates every few months, the RBI is only reducing growth in these sectors; the automobiles (4-wheelers) sector has gone into de-growth for instance. And none of the rate hikes have helped reduce inflation.

The reason for this is not difficult to understand. We are talking of “Headline” inflation which has been kissing 10% for the last couple of years. In India, we measure WPI (Whosesale Price Inflation) since CPI (Consumer Price Inflation) is not available fast enough. The WPI has three components. One is inflation in “manufacturing goods” – which has a weight of 65%; the 2nd is inflation in “Fuels and Power” which has a weight of 15% and the 3rd is inflation in “Primary Goods” (including food articles) which has a weight of 20%. It’s interesting to note that inflation in manufacturing goods is only around 5.7% or so. Inflation in fuels is dependent on global factors and how the rupee fares against the dollar. There has been inflation this year in fuels (12.3%); but last year, inflation was actually negative (-2.2%). RBI’s rate hikes have negligible – if any at all – impact on inflation in fuels. The overall high inflation is a result of high inflation in primary articles – mainly food – running at between 15-20% per annum. I fail to understand how the RBI’s rate hikes will reduce food inflation.

The real reason for food inflation was brought out brilliantly in a study done by Sajjid Chinoy of JP Morgan recently. He points out that there are several reasons for inflation in food articles but primarily, it’s the impact of the NREGA (National Rural Employment Generation Act) which was launched in 2005 by the UPA-1. In the pre-NREGA period (1999-2005), nominal wages (wages inclusive of inflation) grew at an average annual rate of just 2.7%. Post NREGA (2006-2009), average nominal wage inflation has been 9.7%. But in the Jan 2010 – May 2011 period, the wage inflation has really surged to nearly 20% (in fact 22% in May 2011). Wage inflation is obviously good news for the poor who receive these wages. In addition to NREGA, Chinoy argues that there are other factors which have improved the availability of money in the hands of the rural poor: a sustained rural infrastructure thrust over the last few years; higher MSP (Minimum Support Price) paid to farmers and an increased “urbanization” of the rural economy. Taken together, the rural folks are raking in more money than they ever have. The nominal wage increases have also increased the real wage increases (wage increases, net of inflation). While in the 1999-2005 period, real wage increase was flat (no improvement in standard of living), in the 2005-2009 period, it was just 2% (perhaps because inflation ate away into the nominal wage increases). Post 2010, however, the real wage increases have been of the order of 10% (in fact, 14% in May 2011). Clearly then, the rural folks are happy. This is the best they have ever had. The inflation is not hurting them; in fact inflation is happening as a result of more money flowing into their hands. It’s the distribution of wealth that is leading to inflation. Not the conventional factors which RBI is accustomed to handling.

I have argued in the past that urban folks like us are not affected much by inflation. We may feel so, but in reality our standard of living is improving every passing year. Annual salary increases in urban areas have never been less than 12-15% per annum (always more than inflation). The only time this was disrupted was in 2009 when corporates cut salaries in some cases and didn’t give increases in some other cases. Since then however, salary growths are back to normal. Why PLUs (People Like Us) complain about inflation is because its human nature to complain about cost increases. On the other hand, no one likes to talk of salary increases! If our salaries were not rising fast enough, concerns of inflation would have been right. But I don’t think there has been a single year (with the exception of 2009) when salary increases have been less than inflation. The only ones who are really get hurt by the inflation are the urban poor – those who don’t have regular employment (drivers, maids, unskilled workers etc) and who depend on the generosity of the well off. And we all know that we well off folks can be extremely selfish – refusing to share our wealth while talking of having more inclusive talk in the same breath.

The RBI would do well to recognize this fundamental tectonic shift happening in the Indian economy. There is a huge distribution of wealth taking place. This is desirable; not something that needs to be curbed. The urban middle class may complain – but their salary increases are taking care of the inflation. There is no reason for the RBI to sweat.

That’s why the new target inflation should be 8% rather than the traditionally held view of 5%. In the day of 5% target inflation, the rural poor were being marginalized getting a 0% real wage increase. With more inclusive growth happening since the days of NREGA, it’s ok to have an 8% target for headline inflation.

How can we leave out the implications of this inflation on politics? Since the inflation is a result of higher wages in the rural areas – and thus not a matter of concern for the rural folks – the Congress is likely to benefit from it. The NREGA has been much criticized for being an “unproductive” scheme. Indeed, much of the work given out under NREGA is not helping build good quality and useful rural infrastructure. That needs a correction. But the fact is that sometimes a dole of this nature is a good thing – even if it is unproductive – especially if vast sections of the people are able to get better food to eat as a result of it. Poverty is one thing – but malnutrition is quite a lot more severe. The BJP is a more urban focused party and is bound to make much noise about the inflation. Inflation may be a matter of concern for the urban middle class (unfairly so) – but in the electoral battle, the middle class has a small weight. The parties that win the rural heartland will win the electoral battle.

The real truth is that the RBI has not understood this distribution of wealth part adequately. It is wrong in still targeting a 5% inflation rate. This inflation is harmless. By increasing rates, the RBI is only hurting industrial growth. Already industrial growth is down to less than 5%. If this continues, industries may shut down (already some industrialists are talking of shifting production to other countries). This will lead to joblessness. How this helps the country is something that the RBI must explain to the people. And to the Finance Minister. It’s time Subba Rao answers some tough questions…..

Muslim fertility rate drops…..blunts BJP’s charge against community

Recently released data by the Planning Commission indicates that the Total Fertility Rate (TFR – the number of children a woman has in her lifetime) for Muslims has dropped from some 3.6 odd to some 3.1 odd in the last seven years. This is good news since the high Muslim TFR has been a fertile ground for petty politics between the BJP and the Congress over the last several decades. The BJP likes to present the faster growth of the Muslim population as a kind of a global conspiracy to increase the % of Muslim population in India…..sometimes going so far as to suggest (as a kind of a “worst case” scenario) that India may become a muslim dominated country one day!

The accusation of the BJP is not without some truth though. Since independence, thanks to the higher fertility rates of Muslims as well as the migration of Muslims from Bangladesh, their share in India’s population has risen from some 8% at the time of independence to about 13.5% in 2001. Even in the last ten years, the share of Muslims has risen to 14.6% and there is an expectation that their share may rise to 15.9% by 2030 (growing a little slowly now). Even in Kerala – a highly educated state and a state with low poverty levels – the Muslim population has a high TFR of 3.0 while the Hindus and Christians in that state have managed to go below the 2 mark – 1.7 for Hindus and 1.8 for Christians. A number of 2 is considered to be an important “cut-off” point – since that should lead to stability of population in the future.

The Muslims surely have reasons to think about the TFR data. None of the states which boast the best TFR in India are high-muslim population states. Goa (TFR of 21.7, muslim population less than 7%), Punjab (TFR 2.0; muslim population less than 2%), Himachal (TFR 1.9; muslim population less than 2%), Tamil Nadu (TFR 1.8; muslim population just under 6%), Maharashtra (TFR 2.1; muslim population just about 10%) and AP (TFR 1.8; muslim population 9%) are all examples of states with low TFR and low Muslim populations. Only Karnataka (TFR 2.1; Muslim population 12%) is a state that has a low TFR and a Muslim population at the level of the national average. I was initially hopeful that Muslim TFR in Kerala would be below 2, but was disappointed to learn otherwise.

In contrast, both the highest TFR states are states with high Muslim population – much higher than the national average……Bihar (TFR an astonishing 4; muslim pop 16.5%) and UP (TFR 3.8, muslim pop 18.5%). No wonder then that the BJP thinks of this as a conspiracy!

The reasons to understand the higher TFR amongst Muslims are not difficult to find. Firstly, Muslims are socio-economically worse off than the Hindus and Christians; even in literacy terms, they are behind. Poor education and poor economic status are both factors that affect TFR. Secondly, even though Islam does not specifically prohibit birth control measures, there are at least some who believe that when the Prophet asked the people to “marry and procreate”; he meant to grow without restraint. We know that that was said at a different time when the world’s population was just about 200 million. Today, things have changed a lot. The planet is now home to 7 billion people and there is urgent need for all to reduce the population growth rates. Unfortunately, Muslims haven’t taken to family planning measures the way others have. Thirdly, apparently, the Muslim population is more “urban” than other religions and this urban life makes infant mortalities in Muslims lower than in Hindus by 12% or so. This leads to a higher growth rate.

To be sure even….even today, the TFR for Muslims at 3.1 is higher than the national average, which is around 2.7 or so. But the gap between the TFRs of Muslims and the national average has reduced in the last seven years from 0.75 (1998-99: Muslims 3.6; National average 2.85) to just 0.4 (2005-6: Muslims 3.1; national average 2.7). This is a very positive sign and one must hope that both numbers reduce in the years to come. If in the next 20 years or so, all communities in India can hit the 2 figure, then not only will the Indian population stop increasing, it will also mean a stability of the shares of each religion – this will put paid to politics played by both Congress and BJP on grounds of religion.

There are of course other reasons for high TFR. One of the other major characteristics of states with high TFR is their tribal population. Nationally, the TFR for Scheduled Tribes is about 3 – similar to the TFR for Muslims. States like Madhya Pradesh (TFR 3.1; muslims 6.4%; tribals 20%), Chhatisgarh (TFR 2.6; muslims 1% or so; tribals 32%) and Rajasthan (TFR 3.2; muslims 8.5%; tribals 13%), Gujarat (TFR 2.4; muslims 9%; tribals 15%), Orissa (TFR 2.4; muslims 2%; tribals 22%) and Jharkhand (TFR 3.3; muslims 14% and tribals 26%) are examples of states with high TFR, low muslim populations and high tribal populations.  In these states, it’s not the Muslim population but the tribal population that is leading to the higher TFR.

The big hope for India is that as education levels increase, the TFR is bound to fall. In the last ten years, the literacy levels in many of the worst states (Bihar, Jharkhand and UP) have all risen very significantly over their previous levels (Bihar for example has gone from 47% in 2001 to 64% in 2011). There is bound to be a reduction in the TFRs following this.

The real truth is that once the population of the country stabilizes – and each religion achieves its final stable numbers, the politics of the country will change. Politics based on creating and exploiting divisions between religions will matter less and less with every passing election. That should be good – making politics more inclusive and focused on other factors like hopefully, economic growth…..propelling India faster towards its rightful perch at the top of the world…..

Saturday, October 22, 2011

Happy that charges have been framed…..but now bail must be given to the 2G accused

Now that charges have been framed, there is no reason left for denying bail to the accused. It’s not as if these people have been proved guilty yet; there is no reason left any longer to keep them in jail. Since charges have been framed, one has to assume that most – if not all – of the investigative work has been completed by the CBI. Hence even the lame plea that the accused could influence the investigation ceases to exist. Given the Supreme Court’s own preference for “bail not jail”, it is time that ALL accused are given bail.

One has to keep in mind that the accused may not be guilty at all, though prima facie the CBI court has admitted the chargesheet. The reasoning for the SC’s preference for bail perhaps is that if the accused are proved “not guilty”, their incarceration would have been an act of injustice. To the extent that incarceration is required so as not to hinder investigation, the courts can deny bail. But after charges have been framed, bail must be granted. Yes, even now there is a possibility that the accused may influence the witnesses, but the mere fear of that happening cannot be the reason to jail up people who haven’t been proven guilty yet.

An interesting point in the framing of charges is that there are no charges against Raja for the policy of giving spectrum free. The charges relate to giving spectrum away to ineligible companies like Unitech, DB and Swan. This is a fair charge and I have always believed that the policy of giving spectrum free itself was good – in fact very good – but the execution of the policy appears to be riddled with corruption.

The link of the DMK with DB Realty appears to be the best established case. There appears to be a quid-pro-quo between Raja (representing DMK) and DB Realty (the beneficiary of the spectrum sale). However, the matter needs to be proved in court. Mere circumstantial evidence won’t be enough. On paper, DB has claimed that they had advanced a loan to Kalaignar TV – though everyone knows that there is no reason for them to have done so except as a quid-pro-quo. There is perhaps no other relationship between the two companies at all. The link between them has to be on account of Raja and the 2G spectrum sale.

The charges against Reliance Telecom appear to be reasonably strong too. I think the CBI has been able to prove that it was Reliance Telecom which was surreptitiously funding the setting up and application for licenses of Swan Telecom. Since Reliance Communications was already a license holder, the telecom policy disallowed it from applying for a second license. Apparently, there is evidence to prove that Reliance connived with Raja in setting up this maze of companies and indirectly control Swan. On paper, it would be the DB Realty group that would be running the telecom business – but in reality it would be Reliance. The charges still need to be proved of course.

The case against Unitech is unclear. Unitech is accused of being a beneficiary, but at least the papers do not report any evidence of Unitech having tried to bribe the DoT officials to secure their license. The charge against the company and its MD Sanjay Chandra is that they cheated the DoT (government) and induced them to give it the license and spectrum in spite of knowing that they were ineligible. Now prima facie, this looks a little crazy. Ineligible companies may apply for a bidding process; but they should have been rejected by the DoT. I am sure the DoT did reject many other ineligible companies. Unitech perhaps should not have been granted the license, but that should be a charge against the DoT. Where is there evidence that Unitech “induced” the DoT? Unlike in the DB Realty case, so far, there doesn’t appear to be any evidence of a direct or indirect linkage between the DoT/Raja and Unitech. This business of “you benefitted, hence you must be guilty” won’t hold in court. An astute lawyer like Ram Jethmalani will fight this tooth and nail.

The charging of Raja, Chandolia and Behura are all related to granting licenses to ineligible companies. There is absolutely nothing in the chargesheet (at least from what appears in the papers) to suggest that the CBI has faulted the government’s policy on free spectrum. If that’s true, then it’s the right thing. Making policy is government’s absolute right. For example, if it decides to give coal mines for free on first come first serve basis, it can do so. This would not be a scam, though it could be challenged politically. But if it does this for pecuniary gains to some corrupt individuals, then its absolutely not ok. This differentiation is important. A classic example if of giving away diesel, kerosene and LPG at highly subsidized rates; this causes a huge loss (subsidy) to the government, but there is no scam here.

The CBI’s charge of the scam being worth Rs 30,000 odd crores will have to be proved. There have been so many estimates floating around – starting from the sensational and politically motivated figure of Rs 1.76 lacs by the CAG to the low figure of Rs 2645 crores put out by RP Singh, the Lead Auditor of the CAG itself. The TRAI has said the loss is zero. Many commentators on my earlier post have asked if it would make any difference if the scam amount was just Rs 2645 crores. Yes, it would make a difference – because if the scam amount was that small, it would automatically relate only to Raja and his bureaucrats. If the scam was of a much larger order, it would relate to the policy itself and involve all in the government. The political implications are vastly different.

Politically of course, what had to happen has happened. The court proceedings can only affect the political outcome one way. If the charges are proved, then the government will be in an even tighter corner. But if the charges are eventually dismissed, the government will hardly get any benefit of the acquittal. The opposition would have slammed the ruling party in the various elections that would have taken place before the judgment came out.

The real truth is that bail must be given to all accused, not just the five-six that are being talked about. The accused have not been proven guilty yet; how can they be kept in jail forever? If there is a strong doubt that some of them may influence witnesses, then an alternate mechanism must be found to protect the witnesses. Since the case may go on in the courts for many years; that cannot be the reason to keep the accused in jail for so many years….

Friday, October 21, 2011

Another big expressway in Gujarat…..but it has nothing to do with Modi!

The National Highways Authority of India (NHAI) announced yesterday that a new expressway would be built from Mumbai to Vadodara by 2015. The cost of the expressway is estimated at some Rs 7500 crores. The construction of this expressway will make the entire distance between the two mega cities of Mumbai and Ahmedabad covered by expressways. When built, the time taken to travel between these two cities will reduce to just five hours. If the Mumbai-Pune expressway is taken into account, there would be an expressway all the way from Pune to Ahmedabad. Looking into the future, when Delhi-Mumbai Industrial Corridor gets completed, there would be an expressway from Delhi to Mumbai and onwards to Pune. No doubt, in a few years time, when Modi goes back for his election campaign, he will claim credit for the new expressway in his state. But then, what’s new about Modi claiming credit even when it’s not due!

When I wrote about the sham that Modi spins about his state’s development under his rule, many of his supporters argued that the roads in Gujarat were the best. Indeed they are! And (unfortunately for Modi) have always been! I remember living in Ahmedabad twenty years back and traveling often to Vadodara and sometimes to Surat (southwards from Ahmedabad) – the road journeys used to be delightful. I remember going on holidays to Udaipur (northwards) – again it used to be a fab driving experience. I remember going to the other side (westwards) – Rajkot – and the 200 kms long distance could be covered in a mere three hours even then. Gujarat has always had good highways – but all of them have been built by the Central government – not by the state. Even the smaller roads that fall under the state governments have always been good in Gujarat – the road between Ahmedabad and Mahudi being an example.

Many others commented on the record of the NDA with regard to construction of roads. It was indeed Vajpayee who started the Quadrilateral Highways project – linking the four major cities of Delhi, Mumbai, Chennai and Kolkata. Without doubt, that was an ambitious project. Again, Modi benefited as the highways went right through his state. For the record, the NDA government built about 8900 kms of national roadways in their six years of government. The UPA-1 built about 17000 kms and the UPA-2 will most likely build about 20000 kms by the time its tenure is over (going by the projects already awarded and likely to be awarded in the next few months). So unfortunately (again), the data does not bear out the claim made by many NDA supporters that the NDA built more roads than the UPA. Yes, their claim that Vajpayee started it all off is true.

Another damning report for Gujarat is the one of the economic data released recently by RBI. It’s actually the same data that I referenced when I wrote my post titled “Modi’s growth story is a sham…..” on Sept 17th – which said that Modi’s claims of a high growth record were all a sham. The RBI has put out stats (as reported in the TOI) which show that while the state GDP of Gujarat has increased by 79% in the last five years, the national average has also been about the same. So all the rubbish that Gujarat is growing faster than the national average is just that - rubbish. Also, the data shows that states like Bihar, Chhatisgarh, West Bengal, Uttarakhand and Punjab (all non-Congress states by the way) are doing much better than Gujarat and the national average. Also noteworthy is UP – given its high base of GDP. Of course, there are many Congress ruled states also – most notably the large states of Maharashtra and AP – which are doing better than the national average. If Modi supporters find the RBI data wonky, then god save them!

The Human Development Report released by the government yesterday also has some shockers in store for Gujarat. Its record on human development – especially malnutrition of young children – is quite sad. As per the report, 69.7% of children under five years of age are anaemic and 44.6% suffer from malnutrition. I am not quite sure why and how this has happened. I know for a fact that Gujarat is one of the most prosperous states – the poverty levels being much lower than national levels. Maybe it’s something to do with the food habits of Gujarati people – for many of whom the concept of “breakfast” is unfamiliar. Maybe it’s to do with the absence (or low numbers) of government sponsored mid-day meal programs etc which help the poor to get two square meals a day. One needs to look at this more closely.

One other possible reason could be that the foodgrains production of Gujarat is very low – given its size and its population. The total production of foodgrains is just 7.8 million tonnes per annum (even after achieving record growths during Modi’s tenure! I have always stated that Modi should rightfully take credit for this – but with a caveat that the low base would obviously lead to high growth rates). The population of Gujarat is about 6 crores. Compare this with UP – 47 million tonnes (population 3 times of Gujarat), Andhra (20 million tonnes – population 1/3rd more than Gujarat) and Punjab (27 million tonnes – population less than half of Gujarat). Gujarat is a leader in cotton production – and while that gives a lot of cash in the hands of the farmers – it doesn’t give foodgrains (most poor farmers and agricultural workers most consume what they produce before selling the rest to the market). One needs to see if this is indeed true.

The real truth is that Modi’s strategy is to claim credit for economic progress when it is not rightfully his. For roads, he has to thank the central government (whether NDA or UPA). For the economic prowess of the people, he must thank….the people! This is not to say that Modi is not a good CM – he is. But his claims that he is better than any that Gujarat has had or the other CMs in the rest of the country is rubbish. Also his record on non-economic matters (secular harmony most notably; human development; freedom of speech etc) is an entirely different matter!

Thursday, October 20, 2011

Now we know why Kiran Bedi doesn’t want NGOs under the Lokpal….

Ahaa! Kiran Bedi’s been caught with her hand in the cookie jar. Claiming business class fares from conference organizers even while traveling economy. Very good indeed. I remember many students graduating out of colleges doing this when appearing for job interviews. The companies pay them first class train fares and they travel 2nd class pocketing the difference. Nothing different that Ms Bedi has been doing here. She’s over-claiming too and her defence that she’s not pocketing anything personally but passing every bit of the saving on to her NGO doesn’t cut any ice with me.

One other thing before I explain why it doesn’t cut ice with me. Not only is she traveling economy while claiming business fares, she is traveling subsidized economy. Subsidized by the Government of India. In other words, the people of this country. Claiming 75% discount (rightfully given her past recognition) on the basis of her Gallantry Award. As per the figures given in the Indian Express, there are trips in which the difference between her claims and the actual spends is as high as Rs 55,000. There are also examples when she has claimed for traveling by a different route than she actually undertook. Now while a common college student may be forgiven for his/her small tricks, it is not possible for Ms Bedi to seek the same forgiveness.

There is this other small point about who is losing out in this deal. The Government of India gives Kiran Bedi a travel concession of 75% on her economy class ticket. By claiming the full fare from the organizers, this 75% discount is pocketed away by her NGO. So indirectly, it is the Government that is paying money to the NGO. Obviously without any knowledge of what is going on. How fair (or should I say fare!) is it, Ms Bedi, that you have been duping the government like this?

Let me raise the political pitch a bit (just for the fun of it!). That money that you (sorry your NGO) “pocketed” Ms Bedi could have helped Air India stay profitable (not true; but such emotional pitches are often not true!). At the very minimum, that money could have rightfully stayed with Air India and they would have made lesser losses (very true! And the government would have had to fund Air India lesser too). Let’s raise the pitch a little more Ms Bedi. The money that the government saved could have gone on to help the lives of a few hundred or thousand poor Ms Bedi. Haven’t you denied the poor the benefits they could have got – if only you (sorry your NGO!) hadn’t salted away so much government subsidy?

I often wonder what the definition of corruption is. The Oxford Dictionary defines corruption as dishonest or fraudulent conduct by those in power, typically involving bribery”. Was Ms Bedi not dishonest? She says that her event organizers knew that she was doing what she was doing. Today’s TOI says that at least two organizers they spoke to had no idea about this. Is this not a fraud? The Oxford Dictionary defines fraud as “wrongful or criminal deception intended to result in financial or personal gain”. Is Ms Bedi’s act not one of deception? Is her gain (though not personal) not a financial gain? The definition of fraud clearly uses OR between financial and personal gain. Coming back to the definition of corruption… Ms Bedi not in a position of power? She’s a Magsaysay Award winner; an ex-DG of the police; an important and much sought-after member of Team Anna; she can meet any government minister or senior corporate head-honcho whenver she wants to (just look at the list of donors to her NGO and you will see her clout). If she is not in power, who is?

The common man’s definition of corruption relates largely to the government. This argument was used even by Team Anna to stay out of the issue of corruption in one’s personal lives (so if Anna’s followers were corrupt; that was clearly outside the purview of Team Anna). In the past, corporate head honchos who illegally availed of government funding or resources (for their companies mind you! Most of their companies have public shareholders too) have been called corrupt and many even sent to jail. By availing of government discount on air tickets, isn’t Ms Bedi also liable to be called corrupt?

There’s another angle to this. Every NGO is supposed to declare its list of donors and the India Vision Foundation site certainly does that. There are more than a hundred donors including some very eminent names like Soli Sorabjee, Hindustan Unilever Ltd, Infosys Foundation, Bharti Walmart, Lehman Bros etc (see her power!). One simply has to assume that these people were impressed by the work of this foundation and contributed to it and they had nothing to do with the power that Ms Bedi wields! But Ms Bedi, why is the name of the Government of India, or Air India not there in the list? If they have contributed to your NGO, shouldn’t their names be there?

If the Government of India is such a big contributor to your NGO, then shouldn’t your NGO come under the jurisdiction of the Lokpal? Since almost all NGOs – if not all – avail of tax breaks from the government, isn’t it necessary for all of them to come under the Lokpal? What if the NGO (and I am not suggesting that Ms Bedi’s NGOs does this) spends money on other activities of its Chairperson; something that couldn’t have been afforded if this “extra income” hadn’t been there? Activities like entertaining guests, traveling for global conferences at one’s own expense, etc? When the tax authorities look at a company’s books, there are so many legitimate expenses – incurred for business activities – they deny as being personal in nature while in reality they are purely business expenses. So can we deny that many expenses an NGO incurs are difficult to classify as being of business or personal nature? Why shouldn’t the Lokpal then check if there are personal expenses in the books or not?

But apart from all this Ms Bedi, there is the question of moral and intellectual honesty. No one is saying that you pocketed the money. But could you have had some intellectual honesty in coming clean about this before the Indian Express broke the story? If you claim that conference organizers knew of this system of yours, couldn’t you have made it standard practice to send them an email explaining this system? Did you tell Anna that you were doing this before joining his movement? If your only defence is that you contributed it all to the NGO – then what is wrong with what another blogger on this same website wrote: “Because if one chooses to buy the argument what is stopping DMK from saying that the money made from 2G scam was used for distributing free sewing machines to the poor? Or Congress, from saying that the money from the CWG scam was spent to fund some such poor-friendly initiative. Do A Raja, Kanimozhi, Suresh Kalmadi and the lot in Tihar, then get a clean chit? What is Anna Hazare agitating against then?” (Abantika Ghosh – Corruption is in the way Ms Bedi – dated 20th October)….

Ms Bedi, the sums involved are small and the work you do is generally very good. I support your work. This post of mine is only to request you to please please shed a little bit of your “holier than thou” attitude. Just like you will not quit from Team Anna now (unless you are proven guilty), please please don’t ask for others to quit before they are proven guilty. Please please declare all such other practices that have not come to light yet just as you would like ministers to do so. Please please don’t throw stones at those who live in glass houses if you live in one too…..And lastly, please please don’t accuse media of hunting for you simply because you are an activist. This is not the struggle that every activist faces. There are a million others who don’t do what you do Ms Bedi. Don’t hide behind Anna’s halo. Come out in the open, apologize, and correct your ways. We still think you are an awesome person……that doesn’t change.

The real truth is that what Ms Bedi has been doing is ethically, legally and every-which-way wrong. Going by the dictionary definition of corruption, it is also a corrupt activity. The amounts may add up to only a few lacs, but that’s not the point. She should apologize to the public, maybe step down from Team Anna, ask for a full investigation of her NGO and agree to include NGOs under the Lokpal – basically rid herself of this smear. Most of all, she should apologize to Anna – on whose coat tails she has risen to so much popularity…..

Wednesday, October 19, 2011

Maharashtra politics helps Delhi pip Mumbai….

Today’s TOI gives some census data which shows that the Delhi UA (Urban Agglomeration) has gone past the Mumbai UA in terms of population. While the Mumbai UA has a population of some 20.7 million, the Delhi UA has now gone to 21.7 million. Just ten years back, Mumbai UA was bigger than the Delhi UA. Frankly, I find nothing surprising in this finding. I find it entirely believable and true. Anyone who has been to Delhi and Mumbai repeatedly over the last ten years will know how true this is.

I left Delhi about 11 years back and moved to Mumbai for job reasons. At that time, Delhi had already started to change. The number of road projects, the huge expansion in the townships near Delhi (especially Gurgaon and Noida), the investments in the metro railway, the new buses, the preparations for the Commonwealth Games…..all of them bore early news of Delhi’s ambitions to become India’s biggest city. The fact that Delhi and NCR are pampered parts of the country (and rightly so….considering that it’s the capital of the country) only made sure that infrastructure growth in Delhi would continue unabated. The better infrastructure made sure that MNCs made Delhi their hub when they entered India. No wonder then, that the auto, durables, consumer electronics, telecom and even partly FMCG industries are headquartered in Delhi. With so much employment generation, and infrastructure creation, the population was bound to surge. Credit for Delhi’s growth in the last ten years must be given to Sheila Dixit for the work that she has done for the city since the time she took over in 1998.

It’s not that population growth alone is the way to judge the progress of a city. There are many other indicators. Take the percentage of population living in slums – More than half of Mumbai’s population lives in slums; the corresponding figure in Delhi is much lesser (I think it’s about 30% but I am not sure). Take quality of school and college education. Again, there are hardly one or two schools in Mumbai that can compete with the plethora of high-quality schools in Delhi. Leave alone academics, even in terms of extra curricular activities, Delhi schools are miles ahead of Mumbai, thanks to the much better infrastructure they have. Take colleges. Except for an odd St. Xaviers or an IIT or a NITIE, there is nothing much to write for Mumbai – while Delhi colleges typically tend to top the list of best colleges in every poll conducted nationwide by India Today and other magazines. Take public gardens. I am aghast that in Mumbai, even a Union Park or Jogger’s Park or a Nana-Nani Park (all admeasuring less than 1/2 square km surely!) are considered parks! If one takes out the Sanjay Gandhi National Park (which I’ve never understood what it is!), I have a feeling that all of Mumbai’s parks put together would be less in area that one single Nehru Park or one Lodhi Park in Delhi!

The reasons for Delhi going past Mumbai lie in the politics of the two cities. Delhi is a city-state and all of resources mobilized by the government of Delhi are spent on the needs of the city itself. In Mumbai, the city generates most of the cash for the Maharashtra government, but when it comes to spends, very little is spent on the city. Mumbai was always a big thinking city. The industrialists of Mumbai ruled the country in the old days and the world in today’s times. India’s biggest and richest businessmen still call Mumbai their home. But the government that runs this city is so small in its vision that it hardly reflects the aspirations of the people of the city. After nearly 10 years of being work-in-progress, the Bandra Worli Sea Link was thrown open. The second half of this project – the World-Haji Ali sea link is no where close to even a beginning. And it’s already several years behind schedule. It’s the same story with other infrastructure projects. A city that boasts of such a beautiful coastline has no catamaran service or any other form of sea transport. The Sewri-Nhava sea-link (a 24 odd kms long structure) has been in cold storage forever. The Mumbai metro project has been promised to be upgraded everytime but it goes into a limbo every single time. The only capacity addition that the metro has had has been in making the size of the train longer! Very soon we will have a time when the tail of the previous train touches the engine of the next one! Last year, Mumbai even lost the badge of being the busiest airport in the country – again to Delhi. Mumbai’s politicians could never bother about the need for another airport in time – it’s only when things got really out of hand that they scurried around to doing something. In contrast to Sheila Dixit in Delhi, Mumbai has always had weak political leadership both at the state and city levels.

The other problem that Mumbai faces is the threat to its cosmopolitan culture. Again the politics of Maharashtra is responsible for this. Ministers and MLAs elected from rural Maharashtra take office in Mumbai and bring in the culture of those areas into this city. Why RR Patil had to shut down the dance bars – rather than making them clean, better organized and centers of entertainment – is something that people in Mumbai can never understand. Why the government had to make the minimum age for drinking 25 years is something that irks Mumbai folks like nothing. For a city full of ambitious people, the government of Maharashtra is an anachronism…..steeped as it is 19th century traditionalism while its people move ahead into the 21st and 22nd centuries. One reason why the Maharasthra Cong+NCP government is able to take life so easy is the miserable condition of the opposition. The BJP is in total disarray with the recent Gopinath Munde episode almost dividing the party up. The Shiv Sena is a party that has never been able to recover from its split with Raj Thackeray’s MNS. No wonder then that the Cong-NCP combine continues to rule the state inspite of poor governance (its been ruling continuously since 1999).

It’s not as if everything is lost for Mumbai. The core Greater Mumbai area continues to be bigger than Delhi. The city continues to be the financial and entertainment capital of the country. The city’s GDP is far bigger than that of Delhi. The city is home to the biggest corporates – and contributes the most to the tax kitty of the country. What Mumbai lacks in infrastructure – it makes up in the attitude and quality of its people. Forever resilient, forever inspired, forever pushing ahead inspite of the hurdles, it is the people of Mumbai that make this city the Maximum City. That tag can never be taken away. The cosmopolitan nature of the city is unparalleled. Less than half the city’s population calls Marathi its mother tongue, the rest divided between almost all languages in the country. The only other city that comes close to Mumbai in cosmopolitanism is Bangalore – again a city that is becoming a melting pot thanks to the IT industry. Women are the safest in this city, making it the fashion capital of the country as well. There is a lot going for Mumbai……but it’s government is out to ruin all of it.

Whether Mumbai regains its glory or goes down the way Kolkata did will depend on what its political leadership does. The PM has already expressed his support to make Mumbai into a Shanghai. Whether the state government takes up the offer – and improves its record of execution – it finally has a good CM in Prithviraj Chavan – will decide whether Mumbai does become a Shanghai or ends up becoming a Dhaka. Mumbai has to exploit its cosmopolitan culture, its beautiful coastline, the secular fabric of its society, and the dreams of its entrepreneurs – if it has to regain its prima donna status. I am confident it can do so…..

The real truth is that Delhi benefits from being a stand-alone state. The mere mention of that for Mumbai leads to political uproar all over the state. Ideally Mumbai should be a separate state….but if that cannot be done, then at the very minimum, the state government must commit to investing in its growth – the way governments globally invest in their main cities. The city needs more than $200 billion of investments. The money is available. Is the political vision there???