Our depraved society and the police as an ATM machine!

The molestation of the young girl in Assam is shocking and reprehensible but hardly surprising, given the depraved society that we have become. The response of the Assam police chief is equally reprehensible, but again not surprising…..so many of these chiefs have stunned us with their insouciance and worse. But the chief’s ATM machine remark (“police is not like an ATM machine which can be present at the crime scene the moment one inserts a card in the machine”) does remind one of old Hindi films in which the police always arrived after the hero had finished off the villain! Mr. DGP…. you are right…..the Indian police never come on time!

And even when they finally do come, they do precious nothing. One of the reasons for this is that many of the cops are mentally depraved and on the side of the mob that is meting out punishment to the “erring” woman. The woman in Assam was coming out of a pub after all. What kind of women go to pubs? Dhoble (the latest moral policeman of Mumbai) believes that such women are prostitutes. In the Neanderthal-man-like-brains of such cops, such women deserve to be punished. So they tell themselves: Let’s go a little late. Why be an ATM machine at all.

But if cops are depraved, so is our society. Much of our society thinks the same way about our women. While the press was up in arms against Dhoble, there was a concerted move by some in Mumbai to build support for him. To promote him as a samaritan who was just doing his job. They cited how Dhoble had cleaned up the dance bars in the city; how the poor man was only following the law; how an upright police officer was being unnecessarily targeted and so on.

Our society secretly likes such moral keepers. That’s because our society hasn’t reformed. Our society continues to remain backward. Our society is uncomfortable with the winds of liberalization brought about by a modernizing economy and a “westernized” media. In fact, our society is ok even with the use of violence against such vicious forces of liberalization.

The country has moved on economically from where it was in 1991. But our society hasn’t. Economic progress is relatively easier to achieve. Social progress is not. We have to look towards our education system for clues on why this is happening. Even basic courses like “moral science” are missing from our schools. Children are hardly taught what basic courtesies are; how to respect each other and be liberal in thinking. Where do we expect them to learn all this when they see their parents – who themselves missed all this when they were in school – behaving in uncouth ways; spitting and littering everywhere, mistreating their wives and uttering ridiculously chauvinistic rubbish all the time?

That’s why the same story keeps repeating again and again. Take the other story in the papers today…..about the khap panchayat in a UP village that decreed that women under 40 should not be allowed to have mobile phones? Or wear jeans because “jeans encourage young children to elope”. Likewise the Delhi police chief’s sermon some months back that women must dress appropriately. In a modern city like Delhi, do women have to dress like they would in Afghanistan???? Should he have said such a thing at all or should he have issued a stern warning to the perps who ogle at and molest women? But then again, the Delhi police chief must have got congratulatory messages for his statement.

With our society so depraved, how can our politics stay away? Consider the appeal of this BJP MP from Gujarat who wants a complete ban on liquor and cigarettes from being shown in movies and TV serials. Without doubt, he will immediately find support from several NGOs and the variety. I can never understand this clubbing together of liquor and cigarettes. Liquor in modest measures is not a problem at all. In fact, some may argue that liquor in small doses is actually good for us. Liquor doesn’t become a problem unless it is consumed in large doses. But then so does food become a problem when consumed in large quantities. We have a bigger obesity problem amongst the middle class in our country than we have a liquor problem. The point however is that liquor is unacceptable to our old fashioned society, so calling for its ban is a way for a politician (or an activist like Anna Hazare) to endear himself to the community.

The real truth is the unfortunate truth that the Assam kinds of incidents have the approval of our society. That’s why they will keep repeating. While the government has to role to play by ensuring better quality of education, and bringing the perpetrators to book, social reformers have a bigger role to play. Where are the social reformers….the activists who can devote their time towards the upliftment of society? The Raja Ram Mohan Roys and the Baba Amtes. Till they emerge, our police chiefs will continue to mouth such inanities as the police not being an ATM machine….

Don’t clarify Mr. Chidambaram….what you said is true

Chidambaram may have been compelled to clarify his mineral water and icecream statement…..saying that he wasn’t mocking the middle-class, but he really didn’t need to. What he said was absolutely perfectly correct. The middle-class is a pampered lot; and its protests are usually related to its unwillingness to share the spoils of the economic boom we have seen in the last twenty years with those who have been left out. Inclusiveness of economic growth is an alien concept to the middle-class.

But let’s first define what the middle class really is. In my simple definition (not a hyper technical economic one!), the middle-class is largely urban, largely salaried or in own business, and largely educated. We can add the “better-off” rural folks, whether in agriculture, manufacturing or salaried jobs, to this definition. Middle-class does not include those employed as domestic workers in the urban areas (drivers, maids etc), nor rural farmhands and casual laborers. It does not even include the poorer sections of those defined above – so let’s leave the poor factory workers out in many cases. It includes all government servants, most private sector workers and most self-employed professionals. Not surprisingly, the middle-class is a largely urban phenomenon.

Now consider how this segment has fared economically in the last twenty years. In every single year, this segment has seen its salaries or incomes grow at rates higher than inflation. Even in a bad inflation period like the last two years, average income hikes have been upwards of 11-13%, at least 4% more than inflation. Further, even on social parameters……eg education – the middle-class has benefitted the most. The lower classes have also benefitted, but in absolute terms, they still remain in a disadvantaged position.

The reason the middle class cribs is because it is unwilling to share the benefits of the economic boom with its rural, poor and underprivileged brethren. When petrol prices are hiked, and fuel subsidies reduced, it helps the government divert those savings towards programs targeted at the rural poor. When fertilizer subsidies are retained, ditto. When MSPs (Minimum Support Prices) are increased, the beneficiaries are the millions of farmers who are otherwise unable to sell their produce profitably. Of course that increases the prices that the middle-class has to pay and they howl when they have to pay these higher prices. When the NREGA program puts money into the hands of those who cannot be employed by the organized sector in the rural areas, and when they stop migrating to the cities, the urban middle-class complains about the rising wage demands of servants, drivers etc. When NREGA wage levels are linked to inflation, the middle-class again chides the government.

The double standards of the middle-class are apparent also when it discusses Kapil Sibal’s initiatives on Right to Education and policies of Affirmative Action (compulsory 25% seats in even the most elitist schools to be reserved for the poor). If they had their way, the middle-class would like to keep all the resources to themselves and not share anything with those aspiring to join their class. In many ways, the entire 2G spectrum fees controversy – whether it should be given free to telcos so that the prices can be kept low or whether it should be auctioned at the highest possible price which would lead to a price hike leaving out vast sections of the poor from its fold – is a middle-class conspiracy. The middle-class doesn’t like the telecom subsidy (in the form of low or zero license fees) that benefits the poor the most.

The importance of the urban middle-class is vastly different to the BJP than the Congress. For the Congress, its primary constituency is the rural poor and the under privileged. For the BJP, it’s the urban middle-class. So I have no complaints in the BJP’s complaining – and its complaints finding resonance in some middle-class pockets – against Chidambaram’s factual statement. I am all for a political debate and even a polarization on this matter. Chidambaram needn’t have withdrawn his statement or provided an explanation because his statement serves his constituency very well. He was dead right. The BJP can continue to moan on behalf of his pampered urban middle class vote bank, but Chidambaram needn’t heed anything it says.

The same thing was apparent when it came to allowing FDI in multi-brand retail. The urban middle-class “baniya” (a large middle-class community) focused BJP opposed the move and a weak Congress couldn’t find the courage to take a decision which would have benefitted millions in its core farming community. This is a political battle. This is an example of differing political ideologies. The Congress must go ahead with FDI in multi-brand retail. Let the people decide whether they like this policy or not and vote accordingly. It’s a battle between the urban middle-class (most of whom in any case I feel support FDI in multi-brand retail) and the farming community (who favor FDI in a large way).

I have always maintained that the current inflation is a benign inflation. It doesn’t harm the poor. It is in fact, a result of the pro-poor social programs of the government. It’s a direct result of the NREGA transfers and the higher MSPs. The rural poor are not getting pinched by this inflation. Nor are the urban middle-classes in reality. If anyone is getting pinched, it’s the urban poor. Those who depend on the middle-class for their incomes. The drivers and maids and other helping hands who count on our generosity for their livelihood. In spite of our unwillingness to pay this section higher, there has been a forced change in their incomes. With states like Bihar and UP being able to provide more employment to their own people, and with NREGA stemming the flow of people from the rural hinterland to the urban areas, the salaries of even this section of the population has increased significantly. The stingy middle-class though continues to resist paying out willingly…..and complains the most when it has to pay more. It resists and protests everything that leads to a redistribution of wealth in favor of the poor. In that context and in a very metaphorical way – the middle-class is happy to buy more and more products (like water and icecream) for itself – but complains when it has to pay a little more for petrol. Chidambaram was indeed right!

The real truth is that Chidambaram owes no explanation for the truth he stated. His statement about the urban middle class is indeed correct. Every middle class member enjoys a far better life today in spite of the inflation. And yet, the middle class complains. Redistribution of wealth will not happen voluntarily. It will need to be forced down the gullets of the middle class….

Kudos to the SC for revisiting its own “auctions only” ruling….

It was an obviously wrong ruling. How could the SC possibly prescribe policy and that too on such a major subject? How could the SC even have the intellectual wherewithal and expertise to prescribe a particular policy for allocation of natural resources? And yet….when on Feb 2^nd this year, the SC did just that, its ruling was greeted cheerfully by some sections of civil society activists and the opposition. But did that cheering mean that the ruling was right? Was the SC not pandering to public opinion? Thankfully the Constitution bench of the SC has indicated that it may revisit its ruling.

There are two separate issues involved here. One is about ensuring transparency in the allocation process, even if the allocation is done “Free Of Cost (FOC)”. The second is about maximizing revenues using auctions as the route for allocation. Most people of this country are fed up with the all pervasive corruption and hence cheered the “auctions only” ruling. But they perhaps did not realize the consequences of such a ruling. In achieving one goal, were were sacrificing another larger one? Let me elaborate.

If “auctions only” was the route to allocation of resources, the rich would corner most of the resources. In an ascending e-auction methodology as followed in the 3G telecom auctions, the highest bidder wins. Obviously, the well endowed are in a position to bid higher and take the associated risks. The less endowed are sidelined. Only the biggest global and domestic players won the 3G licenses. In contrast, when 2G licenses were first given away without auctions, we had several new entrepreneurs (including the present big daddy Sunil Mittal) being created. Is an “auctions only” policy in line with our goal of inclusive growth then?

Secondly, “auctions only” would lead to a huge increase in end consumer pricing. Take (in a very different context), the IPL. Everything in the IPL is bid for. The teams are bid for. The TV broadcasting license is bid for. Even the players are bid for. As a result, the cost structure in the IPL is very high. Since there is so much money involved, several things (good and bad) happen. The quality of the game improves dramatically – Indian stadiums are the best in the world now. Global standards are met and surpassed – the IPL is as professionally organized as the EPL or the Euro Cup (there are no typical 3^rd world hiccups). But at the same time, the advertising rates for spots on TV are exhorbitantly priced. Advertisers pay through their nose, but they also get a high order viewership. This is the classic “rich country” pattern – where products and services are of very high quality, but the pricing is also high. As such, this kind of a model is inappropriate for a developing country like India, where whether we like it or not, a lower product quality-lower pricing model is more appropriate.

For India, a hybrid model works best. Hockey in its current avatar is in a very poor condition. The quality is very poor and the viewer experience is even worse. If cricket represents extreme capitalism, hockey does socialism. Quite clearly, we need an in-between place. Clearly a capitalistic “auctions only” policy is a misfit in the Indian context.

Let’s look afresh at some of the recent corruption controversies. The crux of the allegation of the CAG of a loss of Rs 1.75 lacs crores to the exchequer is that the spectrum was given away “free”. If “free” meant that the government did not get the money in its coffers, then it didn’t need the CAG to tell us that. But the real allegation was that this was a case of corruption. An impression was created that someone had pocketed Rs 1.75 lac crores. At least, that’s the way most people in the country have understood it. How was giving spectrum away free a case of corruption? Who made the money? Did private companies (as alleged) make the money? Just check out the profit margins of telcos. The most profitable of them all, Airtel, makes 14% Net Profit Margin. The 2^nd biggest Vodafone recently declared its maiden profit after being in this country for nearly 20 years. Idea’s NPM is 3% and Reliance’s 1.4%. Clearly, the private companies passed on the “free spectrum benefits” to their customers. Who ultimately benefited? The people of this country. A completely idiotic theory was presented then that the winners of the new telecom licenses had made huge profits by offloading equity to new foreign partners. Idiotic, because “offloading” wasn’t like the seller was “taking home” any profits. The new money the foreign partner brought was just parked inside the company, just like happens in almost all joint ventures.

Ultimately, everything the government does must be for the benefit of the people. What would have happened if the government had auctioned and made the so claimed Rs 1.75 lac crores from 2G auctions. Firstly, the mobile call pricing would have been so high that teledensity would have remained some 20% or so. And we would have been a sub-saharan economy not the tiger that we are today. Secondly, the government would have used the Rs 1.75 lac crores for its various spend programs, 85% of which would have gone on bureaucratic expenses and only 15% towards benefitting the people. Such is the size of our government that it ends up being the biggest beneficiary of any government income. That is why it is said that the size of the government should be as small as possible. Government must get out of businesses. The benefits of 2G were much more when left to the private sector to distribute them to the public.

Take coal block auctions. Now this is the biggest piece of misinformation spread by the CAG and lapped up by the opposition and media. It is believed again that the private companies benefited unduly by the “free” coal blocks. Again, let’s apply the test of profit margins of power companies that got these free blocks. Here’s a piece from my post of June 2, 2012: The ultimate test of corruption has to be if some person or some company gained personally. Check out the financial results of different private sector power companies. Tata Power: Revenue Rs 8496 crores. Net Profit Rs 1170 (13.7% margin). Bhushan Power: Revenue Rs 9941 crores. NP Rs 1024 crores (10.3%). Lanco: Revenue Rs 8605 crores. NP Rs 116 crores (1.3%). Jindal: Revenue Rs 13334 crores. NP Rs 2110 crores (15.8%). Adani Power: Revenue Rs 3949 crorese. Net loss Rs 294 crores (-7.4%). Check out the public sector NTPC for a benchmark: Revenue Rs 62053 crores. NP Rs 9223 (14.8%). So which private sector company has made super-normal profits? If the “proof” of corruption is that these companies benefitted from the government’s “gift”, surely their margins should have been far higher????

In fact, in the case of coal blocks, there was an auction conducted, but it was at the power utilities’ end. The power companies which got the coal blocks free were granted the permission to set up power plants on the basis of a reverse auction. The reverse auction ensured that the state got the cheapest rates for power. That’s why private power companies do not show super normal profit margins. They’ve passed on the benefits to the people.

Media in this country is of course behaving in an ignorant, self-serving and politically motivated manner. Rather than understanding issues and presenting them in an unbiased manner, it tends to spin sensationist stories so as to improve its own business. Media needs to decide for itself – just like the SC has now done for itself – whether it needs to course-correct or not.

The real truth is that auctions may be an efficient method of allocation, but they cannot be the only method. Auctions have many flaws….most importantly that they lead to concentration of economic wealth in the hands of the rich. Secondly, there are many ways to ensure transparency in the allocation process, without necessarily relying on a capitalistic auctions process. Thirdly, we need to be mature and sensible as a nation. We need to differentiate between genuine corruption (as no doubt there must have been in both the 2G and coal block allocation processes) and government policies. If we cannot, and if we are dumb, then we will lose our rights to enjoy the fruits of democracy….

Is Time magazine fair to call PM an underachiever?

If one goes blindly by recent low GDP growth numbers, rising inflation and high fiscal and current account deficits, and ignores the factors that cause these, then obviously Time Magazine is right in calling the PM an underachiever. But is ignoring the real factors a fair way of judging a person? Is it fair to question the PM’s “legacy” of economic success based on the performance of the economy in just the last one year?

Yes, it’s only the last one year that has seen the Indian economy in a spot of trouble. I covered this in the defense I put up for Pranab Mukherjee as the FM (Defending Pranab Mukherjee as Finance Minister….June 25^th). The defence of Pranab Mukherjee on economic performance is applicable as much to the PM as it was to Pranab.

The one point that Time Magazine can afford to ignore – or willingly choose to ignore – but we cannot, in judging a person’s performance is the condition under which the person has had to perform. If Sachin Tendulkar is made to bat under 50 degrees centigrade temperature, it is very likely that he will underachieve. Or if he is made to bat against a gang of 22 players…..all come together only to frustrate him, then it is likely that he will underachieve. However would we rush to call him an underachiever? Or would we analyze the circumstances and hand him the benefit of doubt? We would try to establish if any other batsman could possibly have done better under the conditions.

So let’s ask that question: Could anyone have done better than the PM under the circumstances? An article recently by Swaminathan S Anklesaria Aiyer warns us against expecting major changes from the PM, now that he has taken over the Finance Ministry. And his reasons are simple and correct. What are the reasons for the slowdown? First, a stoppage of reforms. But why have reforms stopped? Not because of the lack of effort and intention of the FM and PM but because of a certain alliance partner who is anti-reform (Mamata). And because of an opposition (the BJP opportunistically and the Left consistently) that will oppose for the sake of opposing (they oppose petrol price hikes and diesel price hikes and also complain about high fiscal deficits). Another reason for the slowdown is the freeze in policy making. Can that be attributed to the PM and FM? Or to the creation of an environment of fear within the bureaucracy and political class by aggressive civil society bullies (who will call everyone corrupt no matter what the facts). Or on the series of elections that take place every few months making it politically difficult to take necessary tough decisions. Or on the divided political mandate that the ruling party has at the center…..it does not even have a simple majority in the Rajya Sabha. What else can one expect from a government and a PM under such conditions?

It’s not for want of inspiration or ideas that the PM and FM haven’t been able to push reforms forward. Forever, they have wanted to reform the banking, insurance and pension funds laws. Ditto airlines, retail, mining, land acquisition, etc etc. But when it comes to reforms of any sort, there is always someone or the other who opposes and in the very tentative political balance we have now, no PM would be willing to “stick his neck out” as Time blames the PM for not doing. Sticking your neck out is sensible only when you know there is enough support for you. If sticking your neck out leads to the fall of the government, then the same Time magazine would later call you stupid for having stuck your neck out so far!

What Time magazine has raised about the economic slowdown is no doubt correct. From the high 8-9% growth rates till a year back, we are down to 5-6% now. What is worse is that there is not enough confidence that the growth rates will rebound quickly. So one cannot fault Time Magazine for its observations. But one cannot forget that Time Magazine is a tool in the hands of the American power establishment. When Assange was not given the Time Person of the Year Award recently, there was more than routine speculation that the American establishment had pressurized the magazine. In pushing their government’s agenda, foreign magazines will often be parochial in their coverage. By raising questions of legacy, the magazine may be pushing the PM to take decisions that would help its government. This is common sensical. One cannot worry too much about it.

One has to keep in mind the hurdles that face the PM before judging him. He simply doesn’t have a free hand in running the economy the way he would like to One often forgets that in 1991, the Congress had 244 seats – a much stronger position than it finds itself now in.

Could anyone have run the economy better?  Are there so many obvious ideas floating around that the PM simply has to grab and implement them to lift the economy? Filter out all the raucous criticism the BJP heaps on the PM and see if the party has any ideas of its own. Zilch. All BJP leaders will state the obvious. Cut the fiscal deficit. But they won’t support a petrol price hike. Encourage foreign funds flow. But they won’t support FDI in multi-brand retail. Bring inflation down, but they will complain that natural resources are given away cheap (wait for coal block auctions – the power tariffs will shoot through the roof and inflation will rise again). While judging the PM, Time magazine can afford to ignore these realities; but we cannot.

The reason ratings agencies have reduced India’s outlook is not because of the PM’s underachievement. It is because they see no chance of improvement in 2014. Assuming that the UPA loses power (as everyone expects it to), who will emerge strong enough to form the government then? The NDA? The BJP surely cannot manage more than the 206 seats the Congress has got now. Their plate is full of troubles in Karnataka and Gujarat and MP and everywhere. Besides its divisive communal politics has a natural limitation. And for every truant Mamata in the UPA, there is a Jayalalitha and a Nitish Kumar in the NDA as well. This is the real problem that has led to the slowdown. We have a high order of political instability. This is not the PM’s creation. Even Vajpayee failed in sustaining the high GDP growth regime he inherited even though the kind of debilitating political compulsions we now see were not present then. Net net, dubbing the PM an underachiever is a tad unfair.

The real truth is that rather than play politics with the coverage in foreign magazines, it is more important to identify the real reasons for our ills. We need stronger political mandates at the center. We have seen that happen in the states. Such states always do better. An Uttarakhand with a delicate majority for the ruling government cannot be expected to move at the same pace as a UP which has given a strong majority to the ruling party. It’s not about the Congress or the BJP. It’s about being intellectually honest….

The difference between Akhilesh Yadav and Mamata Banerjee….

She may be a bigger veteran in politics, but Mamata surely has a lot to learn from young Akhilesh Yadav. Both set out to achieve the same goal – procuring resources from the Center for their state. Both knew the central government was vulnerable and both used pressure tactics. But one was savvier than the other. The savvier one has ensured that his state gets the resources it wants; the aggressive and uncouth bully on the other hand will go back empty handed. If this message is repeated a few times, it would do a hell of a lot of good for our politics.

The TOI today reports a “deal” between the SP and the UPA, as part of which, as much as Rs 90,000 crores of resources will be directed towards UP. Now everyone knows that UP needs these resources if it has to progress. So does West Bengal, which after more than three decades of Left rule, has gone totally off the Right path (pun intended!). But unfortunately for WB, their leader has got drowned in a dangerous concoction of a bloated personal ego, intellectual dinosaurism (if ever there was a word like that!) and aggressive bullying and totally ineffective tactics. Smart politics is what Akhilesh is practising. He went to the PM, asked for the center’s resources, promised his support in return and came back with his hands full. No doubt, he must have wielded the baton too….but that would have been decently concealed. Given the general demeanous of the PM, it would not even have been required. A good deal would have been stuck, in which the center got support for reforms in return for the financial support that the state wanted.

Akhilesh Yadav is a shrewd pragmatist. I guess it comes with the age. Youngsters want to “get the things done”. Oldies want to fight on for some arbitrary and archaic “principle”. Youngsters get pride from being seen as doers. Oldies from winning pyrrhic victories on needless issues. This one difference makes youngsters so much more effective in doing business, while the oldies stay entrenched in power politics. Mamata may be in young in age, but this is one characteristic of youngsters that she certainly doesn’t possess.

One doesn’t know if the TOI report is entirely correct. The reason I bring this up is because many reports in media these days are speculative and based on motivated canards. Just look at the conspiracy theories that emerged after the Mantralaya fire in Mumbai. TV news channels fanned theories that the fire was a sabotage. And more than hinted that the state government had intentionally staged it so that vital documents could be destroyed. Documents that could incriminate the Congress and its government in Maharashtra. To be sure, media hid itself behind a thin veil. Media didn’t itself created the conspiracy theories. It just amplified what some opposition leaders and some cant-speak-enough activists and look-everything-is-corrupt Anna crusaders said. The foremost of them all was what I call Scam TV – a news channels that relies entirely on scams (mostly imagined of course) – which went hammer and tongs after the state government. Today this channel has been silenced. The preliminary investigations undertaken by experts reveal that the fire may have been caused by some explosion in the hydrogen batteries of servers. There were problems with where the back-up batteries were lodged and if the space had been better designed, the fire would have been easily contained. All true….but there doesn’t appear to be any conspiracy at all. The CM also said that all files would be retrieved within a month (how? Since all government papers have copies that are sent to a multitude of departments) and that absence of papers wouldn’t be a reason for delays. Scam TV of course forgot to even mention this development on its prime time show yesterday! And of course the original conspiracy theorists would say that the investigations are all rigged!

But assuming that the news report of Akhilesh’s deal with the center is correct, what does it mean for us all? Does it explain the little display of confidence that we are now seeing from the PM and his government? The PM made some strong statements at Rio and at the G-20 about taking bold measures to kick start the economy. Anand Sharma – Minister of Commerce – also has made some uncharacteristically bold statements about it being the state’s call whether to allow FDI in multi-brand retail; that no state could block other states from exercising their right. There are reports that the cobwebs on some other reforms are being dusted off. If all this is true, it is great news. The deal with Akhilesh would have been a good one; one that would help the country pull itself out of the policy freeze it finds itself in.

Let’s wait and see what happens. But one thing is clear. WB’s loss is UP’s gain. Hopefully the people of Bengal will read the message clearly. And hopefully this time, they won’t take more than three decades to do what they need to do.

The real truth is that in a mulit-layered and multi-dimensional country like us; one whose people are restless for rapid progress; politicians must learn to do business, even as they play their usual games. The people have no patience for hard positions. They want action. Akhilesh has shown that he can get what he wants in a business-like spirit…..that should be a lesson for all

Defending Pranab Mukherjee as Finance Minister….

As he plans to move to Rashtrapati Bhavan, Pranab Mukherjee is facing criticism that he performed poorly as FM. In his three years as Finance Minister, Pranab Mukherjee has seen good and bad times. While it is true that the economy has headed southwards in the last year, it grew smartly in his first two years. So how much of the criticism is fair?

Much of the reason for this debate is the performance of the economy in the last financial year. From 7.7% annual growth in GDP in the 1^st quarter of FY12 (Apr-June 2011), the growth rate fell continuously every quarter to a disturbing 5.3% in the 4^th quarter (Jan-Mar 2012). The 4^th quarter growth numbers were the lowest in the last nine years. There is a general sense of gloom in the country and the worry is that the worst is yet to come. Lack of decision making, unimaginative tax policies, inability to carry allies along and a vindictive and personalized attack on select corporates seem to be building a case against Pranab. It almosts appears as if Pranab is running away from a sinking ship. But in an intelligent debate, how much criticism can be really piled up on Pranab’s doorsteps?

To start with, let’s look at the growth numbers during Pranab’s 3 years as FM (he took over in Feb 2009….the last quarter of FY09). In that quarter, the economy had grown at 6.3% - hit as it was by the Lehman crisis. Prior to this quarter, the growth had been very ordinary for at least two more quarters at 5.8% in Q4 and 6.1% in Q3 of FY08. So when Pranab took over as FM, the country had seen three poor quarters of between 5.8 – 6.3% growth rates.

Since he took over, the growth improved, partly no doubt because of a global revival. To his credit, Pranab was responsible for launching a liberal fiscal policy – raising government spending to revive the economy much the same way that other large economies were doing so. While India’s numbers were hardly comparable to the US’s ($2 trillion Quantitative Easing-1) and China’s stimulus ($750 billion +), they were substantial enough to lift the economy. Excise duties were cut to boost industrial activity. Dollar inflows were encouraged and the monetary policy was significantly eased. Not surprising then that the economy responded handsomely. It grew by 8.6%, 7.3% and 9.4% in the remaining three quarters of FY10. Pranab was delivering; the Indian economy was back to its dream 9% levels.

The good run continued in FY11, even though it tamped down a bit, again in response to a slowing global environment. The European crisis had already begun to impact global growth. Greece was already a bother. The Indian economy still managed to grow at 9.3%, 8.9%, 8.3% and 7.8% in FY11 – not a mean feat considering the slack global sentiment. Yes, the growth rates were reducing quarter after quarter, but what the heck – the absolute numbers were strong enough.

It’s only in FY12 that the GDP growth started sputtering, giving rise to the criticism againt Pranab. But how much of this is really attributable to him? In other words, would a different FM have managed better results? What is it that Pranab didn’t do well enough? These are questions that need to be analyzed before concluding whether Pranab messed up or not.

In this context, an article in The Economic Times on June 21st by Professor TT Ram Mohan of IIM Ahmedabad (S&P, India Inc Overdoing Gloom - By ignoring objective constraints on growth, many commentators are whipping up futile negativity) is worth reading. The point that the Professor makes is that while India’s growth rates have fallen, so also have those of China (less than 7%), Brazil (2-3%) and Russia (some 4% or so). He also makes the point that the balance of payments crisis has been vastly exaggerated. India’s external debt is a small part of its overall debt; even that has been falling as a % of GDP over the years. If one were to look at these numbers objectively, it is difficult to blame Pranab.

What about the other charges against Pranab? Let’s take one at a time:

There have been no reforms at all. The reforms in the Banking, Insurance and Pension sectors have been hanging fire for long. The GST has also missed its date several times. Ditto the DTC. But an honest assessment of this charge would indicate that the blame cannot be placed on Pranab’s doorsteps, nor in fact on the UPA’s. The fact is that the UPA has one recalcitrant ally – Mamata – and a strident opposition that often forgets its own principles and opposes for the sake of opposing. Critics often dare the government to take bold steps and stick its neck out and not worry about the consequences. But surely, this would be foolhardy. Sanity must prevail at all times. Sacrificing a government makes no sense at all. Early elections (or even elections in 2014) are hardly likely to throw up a stable and strong government. One needs to be practical. No government and no finance minister can be held responsible for this state of affairs.

The other charge against Pranab is that the inflation has been running haywire for more than two years now. The data is correct, but a closer observation will reveal that this inflation – unlike the usual ones – is in fact benign inflation. This inflation is not hurting the poor; in fact this inflation is a result of more money in the hands of the poor. The high inflation is arising from programs like NREGA and the rapidly rising MSPs (minimum support prices) for agricultural products. Indeed, this is a point of departure between the UPA and the NDA. The UPA’s core constituency is the rural poor, and so it keeps increasing MSPs every year. The NDA on the other hand hardly increased MSPs during its six year rule. The farmers are having it better under the UPA rule; the urban middle-class had it better during the NDA period. The urban middleclass also may complain today, but the fact is that their incomes have risen faster than inflation. The high inflation reflects the distribution of wealth taking place in the country. This is bound to hurt the more affluent sections – the more vocal ones – but the poor are in fact getting better.

What about fiscal deficit? Now the fiscal deficit is just an intermediate data point. The impact of the fiscal deficit is high inflation and consequently high interest rates. There is no doubt that Pranab Mukherjee should have done more on managing the fiscal deficit better. Cutting wasteful subsidies is a must. Increasing diesel and power prices would be a good starting point. But just look at how the opposition reacts to price increases of even petrol – the one fuel that doesn’t touch the bulk of the poor. There are protests organized even by parties that like the Congress are pro-poor (the Left, the TMC)….they should ideally be supporting petrol price increases (while demanding that diesel price not be increased). But politics has reached such a point that opposition to any move is a given. Pranab should have realized this and been bolder. In the long run, the only smart way to reduce subsidies is to direct them better. And in this, Nandan Nilekani’s UID program is going to play an important role. Give it a few years and the subsidies will come down.

Some facetious arguments have been used recently to dent Pranab’s record. One such is that the growth rate achieved during UPA-1 was because of the good work done by the NDA. This is rubbish. The NDA’s six years saw GDP growth go below the rate hit in the period before it came to power. The second such facetious argument is that the UPA-1 saw high growth rates because of global conditions. That liquidity was so high that foreign capital was bound to come to India. All developing countries grew rapidly in this period of time. This is indeed true; but then why should the slow-down not be attributed to global factors?

This is not to say that Pranab did everything correctly. I do feel that he could have done better. Given his astute political skills, he should have been able to work more closely with the opposition. He should have been able to push his party to rebuff Mamata. Pranab should also have managed the RBI better. Agreed the RBI is an independent authority, but surely there are enough formal and informal consultations that happen between the Ministry of Finance and the RBI. Had the RBI not increased interest rates so much, the GDP growth rate – especially the drop in industrial production – would not have been this steep. RBI has been irresponsible – read Surjit Bhalla’s articles in The Indian Express against the RBI’s actions. Pranab was perhaps also wrong in bringing in the retrospective tax. Many countries in the world have done the same thing, but given the timing, and given India’s need to access global capital, this move could have been avoided. Somehow, an impression was created that Pranab had been miffed by the SC order against his ministry; and this led him to take vindictive action.

The real truth is that Pranab Mukherjee also had his downsides. Who doesn’t? But it is true that he delivered high growth rates in two of his three years. This is the best anyone could be expected given the global conditions and given the political instability in the country. Overall, I think its unfair to blame Pranab…..

Julian Assange deserves exemplary punishment….

Had Julian Assange been an Indian, the media here would have gone into overdrive accusing the Indian state of victimizing a good man. It would have said that we don't have freedom of speech – forgetting how much rubbish it is allowed to get away with on the same grounds. That our democracy is a farce. That we threaten and legally blackmail those who dare to expose the dirty corruption in our government. Blah blah blah. All such people must be really disappointed that the mecca of democratic values and freedom of speech – the West – is behaving in this manner against a person who was one of the finalists for the Time Magazine of the Year for 2010 and a nominee for the Noble Peace Prize for 2011. They must surely believe that the fact that he didn't win either is another evidence of how illiberal the West has become….

I have always held that Assange was a dangerous element and that he should be arrested and jailed for good. What is his core business? To steal and publish confidential stuff. If the information is not confidential, it is of no interest to him. If it didn't embarrass different governments and countries and cause a sensation around the world, it was not of any use. It mattered little to him that delicate diplomatic relations between countries could be jeopardized by his irresponsible exposes. He would find ways to get access to confidential government documents – perhaps even by illegal inducements. His excuse would be that someone or the other gave the information to him; that he wasn't involved directly in acquiring anything. This is the most standard trick anyone has when running a business of this sort. Media in India does this all the time. They run proxy campaigns on issues of interest to them. They prop up “informed sources” without naming them to put out stories that they may have themselves created. It’s good that this farce is being brought to an end for Assange. Hopefully, this farce will be brought to an end for the Indian media as well.

Julian Assange is now running like a coward. The London courts have all ordered his extradition to Sweden to face trial in what must look like very minor crimes – rape and sexual assault of two women in that country. Like a coward, he has sought refuge in Ecuador. Ecuador? A country that suffered military dictatorship till the late 1970s? Why would the champion of free speech go to a country that is not particularly well known for freedom of speech and democracy itself?

Julian Assange should be taken to America and tried for treason like he fears. What he has done by revealing American defense secrets is nothing short of treason. It’s the same with all the other diplomatic stuff that he routinely finds and publishes. The fact that he was considered a super here by the public is no reason for him not to pay for his crimes. No one should be allowed to steal state secrets. State secrets are part of the requirement of governance. India has many such state secrets. It may say one thing in public on a sensitive subject, but may practice a totally different thing in reality – all for the good of the Indian public. What if documents related to nuclear codes were put out in public and that compromised our entire security regime? Would that be an example of free speech or treason?

Assange was rightfully denied the Time Magazine of the year award in 2010. He didn’t deserve it at all. There was nothing creative or useful in what he did. There are moles in all government departments. Laying hands on confidential stuff is hardly creative stuff. All that you have to do is to provide a platform to publish the stuff. It’s the same with our news TV channels. They claim they have done “scoops”, but in reality the material itself lands up on their desks. Those who have the scoop decide who they want to give it to. Julian Assange should have been smarter; he should have gone about his business covertly. The way smugglers and traitors go about theirs. But then psychotic people like Assange think that by publishing openly, they are being “brave”. I think Assange was plain stupid. Such bravery is misplaced…..and even if the public applauds such people, the law eventually gets them.

Assange should be sentenced to the maximum punishment that the US law provides for treason. Rather than thinking of him as a crusader or an activist, he must be considered as one endangering world peace. It is not difficult to imagine how revelations of confidential documents can reduce friends to enemies, convert peaceful neighborhoods into war zones. Assange and people like him are a threat to society. They encourage ordinary people to reveal confidential information. It is they who get caught, not people like Assange. It is Bradley Manning – the American military soldier who gave confidential American defense info to Assange – who got arrested on charges of treason. He may even be hanged for this. And yet, people like Assange have been enjoying their lives without fear….in fact with much public adulation. Its time this farce is brought to an end.

The real truth is that a stable and peaceful world needs a few curbs on freedom of speech. Assange’s business was inherently illegal. Freedom of speech was just a façade. Assange was a criminal himself in his earlier life – a hacker. He was let off lightly by the Australians when he was caught. Rather than reform himself, he became even more sinister. Wikileaks should have been stopped much before it went this far. But it’s better to be late than never. Assange should now be put behind bars and Wikileaks shut down.….