The loud political message from agriculture…..and why RBI cannot control inflation

RBI has increased rates a record 12 times in the last 18 months. And yet the inflation rate continues to be extremely high at nearly 10%. Why is it that rate increases have not yielded the desired moderation in inflation rates? Is the RBI right in keeping on increasing interest rates in this manner? If the RBI is failing to control inflation, is it its fault or does the fault lie elsewhere? This post looks at why the RBI cannot do any more and why in fact, it has to lower rates now. This post also analyses the failures of the government in controlling inflation by refusing to work on agriculture. Well….the message from agriculture is clear….provided someone is willing to listen.

First let’s get some basics out of the way. As is well known, inflation happens because of a supply-demand mismatch. More specifically, when the demand exceeds the supply. This mismatch can happen either because of a demand surge (called demand side inflation) or an under-supply (called supply side inflation). Demand surges are usually short-term and have to be regulated by the RBI. Under-supplies are usually long term structural problems and have to be addressed by the Finance Ministry and other departments of the government. Too much focus has been placed on the role of the RBI in regulating inflation. Too little on the government. Another basic to understand before we go ahead is to keep in mind that inflation is measured in India largely on the basis of the Wholesale Price Index (WPI). The WPI has three major components – Manufactured products (65% weight), Primary articles – food and non-food (20.1% weight) and Fuels & Power (14.9%). Inflation is measured for each of these components and the overall inflation is derived keeping the weights in mind.

The RBI’s main tool to combat inflation has been to increase the repo rates. Repo rates are the rates at which RBI lends to commercial banks. When repo rates rise, the bank’s also increase their lending rates. This makes money more costly and forces borrowers to think twice, if not thrice, before borrowing. Banks lend to commercial customers (industries mainly) and retail customers (people like us who borrow for automobiles, houses and durables mainly). When rates rise, industries borrow less – leading to lower capacity creation – this in turn leads to a supply squeeze in the future, and hence is counter-productive from an inflation management perspective. When rates rise, consumers take less loans because the EMIs rise – thus leading to a drop in demand for specific items like listed above. This works to reducing inflation in these consumer sectors. As the RBI has increased rates over the last 18 months, exactly what should have happened has happened. Demand for real estate, durables and automobiles has fallen drastically and those sectors are now either in a slump or are seeing smaller growths. Controlling inflation has led to lower growths. Overall – till now - the inflation in the 65% component – manufactured goods – has been contained at about 5.6% levels – wholly bearable. Going forward, further rate increases will lead to an increase in inflation as supply will continue to fall. This has to be avoided.

Overall inflation continues to remain pesky not because of manufactured goods, but because of the other two factors – mainly primary articles. Basically, all of us know the story here – agricultural products have shot through the roof in the last 18 months or so. All of us are groaning as prices of veggies and fruits have shot up drastically. Unfortunately, RBI’s actions have little or no impact on inflation in the primary sector. Most of us don’t borrow money to buy veggies and fruits and cereals. Even if we did, we are hardly in a position to curtail our consumption if interest rates went up.

Primary articles are suffering from a supply side inflation. Take food supplies for instance. Over the last ten years, rice production has increased by only 2%, wheat by 18% and sugarcane by 14%. In the last ten years, overall population has gone up by some 17% or so and thus per capita availability of basic cereals and sugar has been affected badly. Fortunately, production of pulses (up 35%), oilseeds (up 50%) and coarse grains (up 26%) have managed to stay above population growth rates. Yet, the question to ask is if these growth rates are good enough or not. India has a very low per capita availability of foodgrains compared to most other countries in the world. From this low base, we should really be looking at a much faster growth in production. Yet, our agriculture output continues to lag behind. There is nothing that the RBI can do here. It is the job of the government to look at the issues facing agriculture.

There are many problems ailing agriculture. Agricultural growth can only happen if productivity (yield per acre) increases since the land available for cultivation has remained constant for the last 40 years. Unfortunately, agricultural productivity is a big problem. Overall productivity for rice has increased by 18% in the last ten years. For wheat, its only 8%. For pulses, its 27%. Overall, for all foodgrains, it is about 18% - just in line with population growth. For groundnut, its only 12.5%, for rapeseed/mustard, its 26%, for sugarcane, it is zero. For tea and coffee, it is -1% and -14% respectively. Productivity gains have been reasonable only in the case of soyabean (61%) and cotton (168%). Clearly, such small overall gains are simply not enough to feed a fast growing society.

Though most of us feel that fuel prices have been going up very fast, the data indicates otherwise. While inflation in 2010-11 in fuels was high at 12.6%, it was actually -2.2% in the year before (2009-10). Similarly, while in 2008-9, the fuel inflation was high at 11.6%, it was zero in the previous year (2007-8). Overall, fuel inflation has been at an average of 7-8% on a two-year cycle basis.

Clearly then, if overall inflation has to be controlled, agricultural productivity has to be increased. And this is where there has been little or no action by the government in the last 10-20 years. This is not a political subject. It is not a Congress v/s BJP issue. All governments have failed to stoke the growth of agriculture by having new and progressive policies towards technology adoption, growing irrigation, more farm mechanization, better fertilizers and pesticides utilization or power availability for the farm sector. It’s rather shocking for example that pesticides consumption has remained stagnant in the country for the last 30 years. The reliance has been on fertilizers – where also the growth rate has slowed down significantly in the last 10 years. Likewise, after so many years of freedom, the area under irrigation is only about 44% of total crop area. Increase in irrigation has also slowed down significantly in the last 15 years. In the absence of adequate irrigation facilities, we remain at the mercy of the weather gods. In fact, one of the biggest reasons for food inflation has been the repeated occurrence of droughts – last year’s being the latest. Of course, there is the option of imports available when domestic crop production fails for any reason. However, India is such large consumer of foodgrains that any signal in the market that an import program is underway leads to a price increase around the world.

BJP supporters like to believe that the Gujarat government has been the best as far as agricultural growth is concerned. This is indeed true. Over the last 10 years (most of it under Modi), overall foodgrain production has nearly tripled. However, one must keep into account the fact that the base was very very low. Even today, after the tripling of production, overall foodgrains production in Gujarat is just 7.8 million tonnes. Compare this with UP (47 million tonnes), Punjab (27 million), Rajasthan (19 million), Haryana (16 million), Andhra (16 million), Maharashtra (15 million), Madhya Pradesh (15 million), West Bengal (14 million), Karnataka (13 million) and even lowly Bihar (10 million), and Gujarat’s growth number starts looking pale. Gujarat’s foodgrains production is just about comparable with Orissa’s and Chhatisgarh – a number that must surely irk Modi supporters. The only place where Gujarat has done well is in cotton production (up 9 times). Also, agricultural production is good and bad in both BJP and Congress ruled states – the Congress does well in AP (26% growth in 10 years), Haryana (21%), Maharashtra (49%) and Rajasthan (86%) while the BJP does well in Gujarat and Chhatisgarh (142%) but it does very poorly in Madhya Pradesh (-30%) abd Jharkhand (-9%).

There is a strong political message that farmers and the rural folks are giving to various governments all over India. UP has continued to suffer under repeated governments (BJP, SP and now BSP) with an agricultural growth of only 11% in the last ten years. No wonder then that the voters have been voting out incumbent governments every time. It’s the same in West Bengal where the Left government failed to grow agriculture (-1% over ten years) and they got booted out. In TN, agricultural growth has been -4% over the last ten years, and again voters have first booted out AIADMK and now DMK. On the other hand, Gujarat has delivered growth and Modi has been elected three times. Nitish Kumar in Bihar has delivered 50% growth in just the last five years, and he’s been re-elected. Chhatisgarh delivered good growth and its CM was re-elected. Andhra delivered growth and Congress was re-elected. Ditto with Naveen Patnaik (53% growth) who got elected three times. Going into the future…..there is trouble brewing in Jharkhand, Karnataka (no growth in last 5 years), Madhya Pradesh and Punjab (just 7.5% growth in ten years). If there is one variable that affects political fortunes even more than caste and religious alignment, it is the well-being of the farmer!

Net net….subsequent governments have failed in improving the fortune of agriculture in the country. And yet, it is the RBI that has to take the responsibility of reducing inflation. How the RBI can control food inflation is something that beats me. In fact, in my opinion, the RBI is making a big mistake by keeping on increasing rates. It is choking industrial growth…..which in turn is bound to lead to more unemployment and consequently social unrest. The RBI has to lower rates now…..so that industrial growth is unaffected. And the government has to launch a new program for agricultural reforms which will bear results over the next two decades or so.

The real truth is that inflation is not an animal that can be controlled any more by the RBI. It has to be controlled by the government through better policies for agriculture development. Pranab Mukherjee’s hopes for a reduction in inflation come from a good harvest on account of a good monsoon this year. How long can we continue to pray to the weather gods for low inflation? Surely, a country’s fortune is dictated by its own policies rather than by the weather gods…..

Hitler redux – Modi’s style reminds one of Hitler

In my two previous posts on Modi, I have tried to show how Modi’s claim to Gujarat’s economic prosperity is untrue. Gujarat was always prosperous. Gujarat never had electricity shortages. Gujarat always had an industrial climate – industrialists always loved Gujarat. The roads were always good. Yes, the drinking water is Ahmedabad is now much better thanks to the Sardar Sarovar Project, but that project was started much before Modi or the BJP came to power in Gujarat. I have also written about why Modi was desperate to woo the Muslims – in no state in India where the Muslim population has exceeded the national average of 13% (and that includes four of the biggest five states – UP, Bihar, WB and Andhra Pradesh) has the BJP ever done well. This last piece is a focus on Modi personally. Not on the BJP. Not on other leaders of the BJP. Nor it it any wave of support for the Congress or other non-BJP parties. This is an apolitical piece. This piece is solely and squarely on Modi himself. The more one looks at Modi’s conduct, it becomes apparent that there is an inner core of his which is comparable with Hitler’s.

You cannot hide the true dictatorial character of a person behind a pretentious veil of democracy for too long. On the one hand, there is the sham of a democratic “sadbhavna” fast on in Ahmedabad. On the other hand, there is a shameful dictatorial attempt on to scuttle the protesting crowds. Protests against Modi in Gujarat?

But why should we be surprised by Modi’s suppression of the protest held by riot affected victims against his fast? Knowing Modi’s style and his attitude to those who don’t swing to his tune, it should have been expected. After all, the sadbhavna fast was Modi’s grand plans to pitchfork him into the arena of central politics. How could some so-called victims disturb those plans?

A few months back it was no different when the Congress attempted to scuttle the voice of dissent by first not giving Anna Hazare permission to fast at Jantar Mantar. That was panned by one and all. Then the party made the mistake of arresting him and putting him in Tihar. That immediately backfired. But at least the public howls woke the party up. It quickly changed tracks. The party was forced to agree to an alternate and bigger location for the fast; to an unconditional fast-unto-death no matter how undemocratic that is. At least, the Congress responded with contrite behavior. What about Modi? Will Modi respond by apologizing for the detention of the protestors? We will wait to see if he does that.

In many ways, Modi’s motives, ambitions and methods are similar to those of Hitler. Modi’s motives have always been to cater to the fringe right-wing elements of his Hindu followers (the majority), just like Hitler catered to the vast majority of right-wing Germans. He has unabashedly been anti-Muslim, just like Hitler was unabashedly anti-Jew. And it’s worked for Modi just like it worked for Hitler. The Germans handed Hitler one of the biggest electoral victories of the time with 44% of them voting in his favor. The Gujaratis have likewise rewarded Modi by giving him three successive terms in the state. Modi’s ambitions have always led him beyond the shores of Gujarat towards Delhi. Just like Hitler’s led him beyond the shores of Germany to continental Europe. Modi talks of the “asmita” of Gujaratis; Hitler spoke of the Aryan pride of Germans.

Even the early beginnings of Hitler’s anti-semitism could be traced back to a pre-existing feeling of German majority suspicion against the Jews. A theory that existed after WW1 was that the German defeat in that war was not caused on the battlefield but by the liberal, socialist and communist subversive elements on the home front (the Jews). It’s a very similar situation that exists in India. There is a feeling in many in India that it is the Muslims who are behind the terrorism in India. Additionally, in Gujarat, for many decades now, there has been a feeling that the Muslims are anti-India and pro-Pakistan. That they cheer for Pakistan when an India-Pakistan cricket match is played. This may be all rubbish but this feeling has persisted for long in Gujarat.

There was another reason why Hitler became anti-semitic. Hitler was influenced by the thinking of Marx in his early life. However, he despised the “class division” propounded by the Marxists. After WW1, when the German society was vastly divided, Hitler blamed the Marxists for the divisions in society. And to his chagrin, most of the proponents of Marxist ideology were the Jews. In Hitler’s mind, that was proof that the German problems were because of the Jews. It’s a very similar thing with Modi. In many ways, Modi hold the politics of appeasement followed by the other political parties responsible for many of the problems in India. If the Muslims were not appeased, they would have “fallen in line”. If the Muslims were not appeased, they would have been more nationalistic. Modi’s strategy is a political strategy. A strategy to win the support of the majority community by using the appeasement of Muslims as bait. Just the same was as Hitler’s political strategy was to win the support of the majority Germans by using the minority Jews as bait.

Hitler’s supporters often cited his huge popularity at home to prove his leadership and charisma. His right to rule Europe. Hitler was an extremely powerful orator who could rouse the crowds. It’s the same with Modi. Even the biggest detractors of Modi cannot deny that Modi’s charisma is more than that of most other leaders and so is Modi’s oratory. By making Jews the butt of all things wrong in Germany, Hitler used his oratory to the hilt in polarizing the Germans against the Jews. Modi’s doing the same. He is making the Muslims the butt of all things wrong in India to generate the support for himself in Gujarat.

Hitler had many allies in his war against the Jews. The Axis powers – the alliance of like-minded nations – included Italy, Japan, Hungary, Romania and Bulgaria. There was indirect support from Finland, Iraq and Thailand – countries who were fighting their own local problems and found that their enemies were the same as the enemies of Hitler. Many people who commented on my previous two posts on Modi said that Modi was “growing the NDA alliance” and making it stronger than it was. That’s exactly how Hitler’s thinking was when he signed the agreements that joined the Axis Powers. The NDA includes partners like the VHP, the Bajrang Dal (non-political but still large organizations) and the Shiv Sena who agree with Modi’s ideology. And it also includes many other parties who are merely fighting their local battles against the other non-BJP political parties.

And here’s something that everyone knows but no one really ever admits. Hitler’s cherished goal was to set up the “New Order” – German hegemony in continental Europe. In many ways, Modi’s goal is also the creation of a new order. A rule of Hinduism all over India. If he had his way, Modi would have India be called a Hindu country rather than a secular one.

The parallels between Modi and Hitler are nothing unique to this post. But sometimes, it just helps to re-look at historical facts to see if there are lessons to be learnt. Germany was always a great country like Gujarat has always been a great state. Germany was one of the leaders of the Industrial revolution just like Gujarat has been one of the leaders of the industrial revolution in our country. Germany led in engineering. Gujarat leads in exports; in chemicals and pharmaceuticals and many other domains. Hitler thought that domestic support could leapfrog him to pan-Europe leadership. That’s the mistake he made. That put the entire German population – along with a few allies – against the rest of Europe. Modi should keep that in mind. His home support is good for him to remain in Gujarat. But that support cannot leapfrog him to the center. For that, he has to have a new gameplan; a new strategy. A new strategy that recognizes the lay of the land outside Gujarat…..and to get there, he has to first shed his dictatorial ways. He has to become much more inclusive and democratic. He must allow protests against his government. He must be man enough to face them….

The real truth is that by stopping protests against his movement, Modi has once again shown his Hitleresque features. This is his moment in the sun. How can someone put up a protest against him at this moment? The protest has to be scuttled. This is a very Hitler-like response. Hitler scuttled all opposition to his rule. But he failed. Modi shouldn’t make the same mistake…..

Why Modi has no option but to woo the Muslims…..and why he could take the BJP down with him

Here’s the big problem that faces the BJP. With every attempt that Modi makes to go beyond Gujarat, BJP’s problems will only rise. No matter what Modi does in terms of his Sadbhavana fast, it will be extremely difficult for him to shrug off the tag of being a Muslim baiter. To cleanse the stigma of the 2002 Godhra riots, Modi and the BJP will have to go very very far to please the Muslims. Can the BJP and Modi do that? If they do indeed do that, can they still hold on to their core Hindu following? In my humble opinion, No.

Modi has succeeded in Gujarat on a strong anti-muslim platform. He came to power in October 2001 and soon thereafter thanked his core constituency by playing the role he did during the Godhra riots in 2002. What happened then was the biggest attack on the Muslim community in India in the last ten years. Modi succeeded with his strategy in Gujarat because of the small presence of Muslims in that state – just about 9% of the total. Taking a stand against this small population helped him unite the large Hindu population. This was good political strategy and Modi got the desired results. Three consecutive terms as Chief Minister.

But now, as he looks to spread his wings outside Gujarat, let’s look at why Modi has no options but to woo the Muslims.

It’s not surprising that BJP’s most stable governments have come in states where the Muslim population is small. Take Madhya Pradesh for instance where the BJP has been ruling continuously for the last 8 years. The % of Muslims in MP is just 6.4%. Take Rajasthan where the BJP has ruled for 12.5 years out of the last 20. It has a Muslim population of just 8.5%. Take Chhatisgarh where the BJP has ruled for 8 out of its 11 years of existence. The Muslim population in Chhatisgarh is only 1%. Again in Punjab, the BJP has not had any direct presence of its own, but alongwith its alliance partner, the Shiromani Akali Dal, they have been in power twice out of the last three times. Any surprise then considering that the Muslim population in Punjab is less than 2%?

If you take states where the Muslim population starts to touch the national average of 13-14%, the BJP’s performance starts to flag. Take Jharkhand where the Muslim population is just about 14% of the population. The BJP has ruled only four and a half years out of the last 11 years of the state’s existence. Take Karnataka where the Muslim population is about 12% and the BJP has come to power only once – currently. And the way it is going, it is unlikely to retain the state in the next elections (though not for reasons of faith). Take Andhra Pradesh with a Muslim population of about 14% and the BJP has never ruled in AP.

Of course in states where the Muslim population is higher, the BJP has had almost no success. The most glaring example of this is UP where the Muslim population is 18.5%. In the long history of UP, the BJP has only managed to rule the state for 5 years 1997 and 2002. And of course how can we forget that one and a half years of Kalyan Singh rule in 1991 which ended up in the disastrous demolition of the Babri Masjid. Even this much has been possible because UP was the “karma-bhumi” where the Babri Masjid was demolished. Going by current trends, the BJP has no hopes of regaining power in UP in the near future. Take Bihar as another example of a state with a strong Muslim population of 16.5%. The BJP has never ruled in Bihar. It’s only presence now is in a minority (how strange the choice of this word!) role in the JD (United) government. And everyone knows Nitish Kumar’s distaste for Modi. Nitish insisted during the last state elections that Modi would not come anywhere close to Bihar. Even today, Nitish is keeping his distance from Modi’s fast. Take West Bengal, where the Muslim population is 25% and the BJP doesn’t even have the beginning of a presence. Take Assam where the Muslim population is 31% and again, the BJP managed just 5 seats out of 126 in the assembly. Again in Kerala (25%), the BJP has failed to open its account.

There are some states where the Muslim population is small and yet the BJP has not been able to make any mark. These are perhaps because of other reasons like the lack of a strong organization or infighting. Take Haryana where the Muslim population is about 5%. The BJP has never ruled the state. Take Maharashtra where the Muslim population is around 10% and strangely, the BJP has never ruled in Maharashtra. Its alliance partner Shiv Sena did rule once, but only once for five years (and that too as long ago as 1995-99). Again in Tamil Nadu, where the % of Muslims is about 5%, the BJP must see an opportunity. Unfortunately, the politics of TN is driven more by regional factors than religious ones and the BJP has thus not found much resonance there. But the low Muslim population explains why the AIADMK and the DMK both don’t find anything amiss in tying up with the BJP. Jayalalitha has no qualms in aligning with Modi as seen recently by her sending emissaries to support Modi’s fast. Likewise in Orissa, where the Muslim population is under 5%, the BJP has never ruled on its own, but its alliance partner, the Biju Janata Dal has no qualms in joining hands with the BJP.

Unfortunately for the BJP, the biggest states with respect to population and therefore the seats in Parliament are those where the Muslim population is significant. These states include four of the biggest five states: UP, Bihar, WB and Andhra Pradesh (the only exception is Maharashtra). That’s why it is extremely difficult for the BJP to form a government at the center on its own. Even making a stable alliance is a problem. The only time it was able to do so was when it was able to unite the larger Hindu community by stroking the very primeval religious instincts of humans after the Babri demolition. The party has only declined in stature since then. The problem for the BJP is that even if it scores major victories in Maharashtra (likely) and Tamil Nadu (highly unlikely); it is unlikely to be able to offset its losses in the muslim-heavy states.

This backdrop explains Modi’s strong compulsion to extend an olive branch to the Muslims. Unfortunately, this is easier said than done. Two of the biggest anti-muslim pogroms in the last 20 years are directly attributable to the BJP – the Ayodhya issue in 1992 and the Godhra riots in 2002. Even today, the BJP has chosen Uma Bharati – the firebrand and vitriol-spewing zealot – to head its UP election strategy. Even today, the RSS dominates the BJP think-tank. The RSS’s attitude towards the Muslims is well known. Even today, its alliance partner in Maharashtra is Shiv Sena, whose anti-muslim stance is well known. Even today, the VHP continues to occupy a strong presence in the BJP’s scheme of things though it has been getting increasingly disenchanted with the BJP’s conciliatory moves towards the Muslims.

While Modi is trying to woo the Muslims, he is also a smart strategic thinker. He understands that it will be impossible to win the Muslims over with one fast. The un-declared BJP ideologue Swapan Dasgupta has said as much when he said that these are only the first steps that Modi has taken and the journey ahead is quite long. That is why Modi is trying to pitch his economic record as the selling story for his PM campaign. My post of yesterday specifically shows that Gujarat’s economic progress cannot be attributed to Modi. Gujarat was always prosperous – it always had good roads, industrialists always love it, it never had a power problem. Modi wants to claim credit for Gujarat, but the truth will come out sooner or later.

Whether Modi does become PM or not will depend on how he can handle these two factors: his ability to sell his growth record and his ability to woo the Muslims. Generally speaking, religion (and caste) still play an important role in deciding the fortunes of political parties. That is why Modi will find the going tough. That is why the BJP is in a bind. The more Modi tries his hand outside the safe state of Gujarat (and a few other states), the more the risk for the BJP. The little chance it has of getting the support of the Muslims on grounds of its flimsy anti-corruption stance will vanish the moment Modi is seen as its PM candidate. In “Marketing” jargon, the BJP is a well defined brand. Its core is Hindutva and a definitive opposition to Muslims. Strong brand imagery gives it support amongst the more extreme Hindu followers, but makes it lose support amongst the Muslims and the moderate Hindus. Any dilution of this imagery will only harm it….

The real truth is that while Modi is very good news for the BJP in Gujarat, he is very bad news outside the state. Modi himself recognizes this. Hence he is trying both –  to woo the Muslims and to pitch his economic record. I doubt if he will succeed. If he doesn’t, he could take the BJP down with him. In my opinion, the BJP must try and find a moderate candidate – someone like Vajpayee was. Vajpayee was the right kind of leader for the BJP. But now, it’s a tough task for the BJP really. Maybe Arun Jaitley fits the bill better than any other leader I can think of…..but Jaitley is not a mass leader. Who else is there????

Modi’s growth story is a sham…..

As Modi starts his 3 day fast in Gujarat today, it’s interesting to look at his growth record in the last 9 years that he has been CM. We should remember that while the BJP has been ruling Gujarat since 98-99 (12 years), Modi’s tenure only started from Oct 2001. Prior to him was the rule of Keshubhai Patel. The reason to look at the economic scorecard of Gujarat under Modi is that Modi’s supporters have gone to great lengths to tom-tom Modi’s economic achievements. Though most people (outside Gujarat) consider Modi to be communal, they like to give credit to Modi for Gujarat’s high growth rates under his rule. Modi is trying to use his economic success story to stake claim to the PM’s seat. Surely, the canard goes, Modi as PM would be very good news for India – since he would take India into a China-like economic orbit.

But let’s look at the stats and then come to any conclusion about Modi at all:

Source of data: For the purpose of this piece, I have used Net State Domestic Product at factor cost at constant prices in Rupees as the measure of economic growth. The data taken is from the RBI’s “Handbook of Statistics of Indian Economy” readily available on the internet. By using “at factor cost”, we eliminate the effect of taxes. By using “at constant prices”, we eliminate the effect of inflation. And by using “in Rupees”, we eliminate the impact of the $: Re exchange rate. Since the Rupee has been depreciating over the years, the growth rate in $ terms comes lower than the growth rate in Rupee terms. Further, to calculate the average growth rate during a period under consideration, I have used a “simple average” of the growth rates of each year during that period. Whatever method I have used, I have used it evenly for all periods of time under all governments.

Gujarat under Modi: There is no doubt that Gujarat is one of India’s leaders in economic growth. Or so we believe. Well, the data shows that under Modi (between 2002-3 to 2009-10), the average growth rate in Gujarat has been 16.25% per annum. During the same period of time, India’s growth rate has been 14% per annum. So yes, Gujarat has grown faster than India. But does the gap between the two numbers come as a bit of a surprise? India’s growth is an average of “top performing” states like Gujarat and the “underperforming” states strewn all across. So is the gap of a mere 2.25% between Gujarat’s and India’s growth rates high enough to justify Modi’s claim of being such a hot state for growth?

Gujarat under Keshubhai: There is perhaps a reason why the BJP likes to talk about Gujarat’s growth rate under Modi. In the Keshubhai Patel era (1998-99 to 2001-02), Gujarat grew at only 7.5% per annum as against India’s growth rate of 10.7%. Aha. So BJP had messed up Gujarat’s growth rate during Keshubhai’s time. Do we hear anything about this period at all? Or is Modi’s period of growth simply “extrapolated” by the BJP to cover its entire period of rule in Gujarat? Quite clearly, after messing up Gujarat early on, the BJP was forced to pull up its socks. Modi’s performance looks “stellar” in comparison to Keshubhai’s. Modi’s definitely done a good job…..but that’s no so apparent when compared to India’s growth as much as it is when compared to his own colleague Keshubhai’s growth.

Gujarat under previous CMs: Now let’s check out whether Gujarat’s growth story precedes Modi or not. There was a period of rapid changes in CMs in Gujarat between 94-95 and 98-99; so I am leaving that period out (Rest assured –  all the rulers then – the BJP, the Congress and the Rashtriya Janata Party have achieved between 14% and 31% growth rates in that period. I am only leaving it out because it was a period of political uncertainty). The previous strongman of Gujarat used to be Chimanbhai Patel who ruled as CM from 1990-91 to 1993-94. The growth rate during his period was 16.75%. Err…..higher than what Modi achieved. While Chimanbhai Patel was quite a mover within the political classes – moving out of the Congress at one time – he has to be called a Congress CM. He ruled as Congress CM for two terms. His wife Urmilaben Patel was a Congress Union minister. And his son Siddharth Patel is the Gujarat Pradesh Congress Committee President. So Chimanbhai Patel was better than Modi. Prior to Chimanbhai Patel was the rule of the Congress for 10 years from 1980-81 to 1989-90. During this period of time, Madhvsinh Solanki and Amarsingh Chaudhary were the Congress CMs in the state. The growth rate during these ten years was 14.8% - just a shade lower than Modi’s achievements. Let’s not forget that this was the period before economic liberalization was unleashed in the country and so growth rates are bound to be lower.

To conclude – while Modi’s achievements are creditworthy, they are hardly a reflection of his performance. The achievements are a reflection of the enterprising spirit of Gujaratis. Even before Modi, Gujarat was showing exemplary growth rates since at least 1980-81 – when Modi was perhaps just a 30-year old lightweight in the RSS/BJP set-up. The economic miracle of Gujarat – its contribution to the GDP; to exports; to several sectors of the economy; its well developed infrastructure – are all a tribute to the people of Gujarat and not to Modi as CM. If economic growth were to be used as the yardstick, we owe a salute to Madhavsinh Solanki, Amarsingh Chaudhary and Chimanbhai Patel (all Congress) in addition to Modi. And of course, we must remember the mess that Keshubhai created.

Now let’s compare Modi’s growth rate with growth rates hit by some Congress ruled states.

Growth rates in Maharashtra: During the same 8 years period that I have considered Modi’s growth data for, the state of Maharashtra – under Congress rule – recorded an average growth rate of 15.5% per annum. It is generally believed that Maharashtra has lost its “mojo” in the last decade or so. But the economic data surely does not indicate that. In fact, though the Congress government gets maligned for governance issues, their record on economic growth has been very strong. Almost as strong as Modi’s. Let’s look at the two states in a different way. The Net SDP of Maharashtra today is 54 times bigger than what it was in 1980-81. The Net SDP of Gujarat? Marginally better – 56 times bigger in the same period of comparison. That should prove clearly that Gujarat has matched – but only matched – Maharashtra in the last 30 years. And Maharashtra has been ruled for 25 out of these 30 years by the Congress.

Growth in Haryana: This state has been ruled by the Congress since April 2005. Net SDP growth rate over the last five years has averaged 18% - significantly higher than Gujarat’s under Modi.

Growth in Andhra Pradesh: This state has been ruled by the Congress since May 2004. The Net SDP growth rate over this period of time has averaged 16%.

So what really are we talking about? I don’t have economic data for Delhi, but I am sure that Sheila Dixit’s Congress government has provided more growth than Modi has.

Again, in spite of all the growth that Modi seems to have achieved for Gujarat, the state barely makes it to the top 5 in the country in terms of size of  GDP behind Maharashtra, UP, Andhra and Tamil Nadu. Its economy is just about half of that of Maharashtra’s. Even in terms of Per Capita Income, Gujarat (Rs 63,961) trails Haryana (Rs 78,781) and Maharashtra (Rs 74,027).

I know many people will quote some other statistics apart from Net SDP to evaluate economic performance. Let me pre-empt that. A study by the Oxford Poverty and Human Development Initiative using a Multi-dimensional Poverty Index (MPI) shows that while there are 41.5% poor people in Gujarat, the same number is 40.1% in Maharashtra and 41.6% in Haryana. Gujarat is 8^th in terms of  % of poor in India….nothing very spectacular really.

One last piece of statistics. Let’s look at Congress rule and BJP rule at a national level. The BJP led NDA ruled India between 1998-99 and 2003-04 and the average GDP growth rate was 10.4% per annum. The Congress led UPA has ruled India since then and the average growth rate in its tenure has been 15.8%. That should settle any debates on who has a better economic scorecard – the Congress or the BJP.

The real truth is that Modi has a strong propaganda wing. This propaganda wing has spread the canard that Modi has been an outstanding performer. The media in India is either so ignorant or so venal that it has not bothered to do any research to substantiate or disprove this propaganda. The absence of any strong leader in the BJP at the center has provided Modi the right fertile ground to plant and grow his canard. Today, the propaganda is starting to be believed. This blog hopes that logic will prevail…..

Petrol price hike is not against the aam aadmi…..

Petrol prices went up again. TV channels went on a mindless frenzy of emotional outburst reflecting the angst of their middle class audiences. Sense gave way to non-sense. Emotions to rational analysis. And of course, politics sat squarely in the middle of every debate as always!

Let me just take some of the issues involved in this matter:

Petrol price hike will stoke inflation: Wrong. The impact of a price increase in petrol does not run through the entire economy, as the impact of a diesel price hike does. Most of the petrol is used by the urban middle class in running their two and four wheelers for transport. This section gets hit hard and directly. But it does not affect the prices of other goods which depend on diesel for transportation across the country. Inflation does not rise much because of petrol price hikes.

Crude prices had touched $145 in July 2008. Now the prices are much lower at $115 or so. Yet petrol prices are higher by at least 50% now since then. Why? There are two reasons for this. 1) In 2008, when the crude prices went up to $145, and the retail prices were comparatively low, the government was picking up a huge amount of subsidy on petrol (in addition to the subsidy on diesel and LPG). Every litre of petrol it sold led to a loss to the oil PSUs. Those losses were funded by the government. Today, the government is bearing a lower burden by passing on much (not all) of the burden to the people. The petrol subsidy alone this year would have been more than Rs 5000 crores if this price hike had not been taken. That’s why the retail petrol prices are higher today than in 2008. This trend will continue. Every now and then (especially around election times!) the government may reduce the retail petrol prices…..but in the long run petrol prices would keep increasing till subsidies on petrol become zero. The government will have to continue subsidies on diesel, LPG and kerosene though 2) In 2008, the Re was quoting at Rs 42.7 against the dollar. Today, the Re has fallen to Rs 47 odd. The impact of this on crude prices in rupee terms is obvious. Some would argue that the rupee having fallen so much reflects how poor our economic condition is. Not true! But this post cannot cover that subject.

Government makes huge tax revenues on crude and refined fuels. Why can’t it cut those taxes to benefit the people? This is right. The central government does indeed make a lot of money on excise, customs, VAT etc and the state governments make monies on sales tax on fuels. All of those higher taxes that the government will make will go on to increase the revenues of the government. The government deploys those revenues behind pro-poor programmes (NREGA, fertilizer subsidy, PDS etc etc). If the government cut taxes on fuels, only the urban middle classes would benefit. If it increases prices, the urban middle class is hit, but the rural poor are benefited because the pro-poor programs get higher funding. So the urban middle (and upper class) pays for the rural poor. That’s only fair, isn’t it? Besides, let’s not forget that the government’s revenues are much lower than its expenses. This gap is broadly called the fiscal deficit. A high fiscal deficit causes inflation which affects every citizen. The petrol price hike will cut the fiscal deficit a wee bit and help (indirectly) the fight against inflation. Inflation for the urban middle class will surely rise, but for the entire country may actually fall. But all this is true only in case of petrol price hikes. If diesel price hikes happen, then the whole economy is hurt. If LPG prices increase, then again all sections suffer. That’s why the government freed up petrol prices but kept its control over diesel and LPG prices.

So will petrol prices keep increasing in the future? You bet! Nomura has predicted that crude prices could touch $230 in the future. We can imagine what that will do to petrol prices.

But why don’t diesel prices increase? Today, so many cars are based on diesel. Isn’t that subsidizing the urban rich? Yes indeed. The government has to look at a way of separating urban diesel pricing from rural and commercial diesel pricing. There is no reason for rich people driving diesel-guzzling SUVs to get subsidies from the government. The price of diesel for the transport sector and rural areas must remain subsidized for longer though.

What about LPG prices? According to one TV channel, the government plans to reduce subsidies here too? Well, there is much abuse of LPG subsidies today. Instead of the subsidies reaching the middle classes, they are being usurped by commercial establishment (restaurants etc) who consume gas cylinders in bulk by bribing the local delivery boy. So the government pays money for the restaurant’s gas bill! If only the government could stop this corruption, it could direct its subsidies much better and maybe then, the prices needn’t increase so much. So while LPG prices have to rise very significantly, it would be foolish to increase it in one step. The pain has to be spread over many years. There is an obvious political problem here. Economics may dictate that prices be increased in one step, but politics will put the brakes on such a plan. I would be surprised if the government increased LPG prices steeply today. I am in favor of reducing the number of subsidized gas cylinders…..but the price on non-subsidized LPG cylinders should increase slowly.

So the urban middle class keeps suffering? While it appears so, that’s not true really. Much of the economic gains the country has made in the last 20 years has benefited the urban middle classes. Just look at the salary levels of people today v/s just 5 years back. On average, pay hikes are between 15-20% per annum (in the developed West, they are not more than 2-3% per annum). So even if inflation is 10%, we are getting more in our hands in real terms. Many people are confused with our economic growth of 8-9% per annum. They think it’s less than our inflation of 10%. Wrong! The economic growth is over and above the inflation number. That’s why it’s called real growth. The growth after considering the impact of inflation is about 18-19%. That’s called nominal growth. In short, middle classes have enjoyed much of the benefits of economic liberalization. Now its time we share the spoils with the poor.

Why should Income Tax payers be singled out to the brunt of LPG subsidy reduction? Well, the principle is that the rich pay for the poor. What other method is there to identify the rich from the poor except for Income Tax returns? The problem of course is that many rich businessmen (and bulk of Indians do business; not jobs) don’t pay Income tax at all. They would escape any impact of withdrawal of subsidies. This is a larger problem…..but again, that’s the subject matter of another post.

What’s the long term solution to the fuel pricing problem? Well clearly, we have to move away from crude-based fuels. A bulk of crude is used in the transport sector and the power-generation sector. The solution is simple really. 1) We must move towards more electricity based transport systems. The metro is a prime example of how electricity can substitute petrol/diesel. Electric cars are starting to enter the Indian market, though they are still expensive. 2) We must generate electricity using nuclear power. Nuclear power is clean….much cleaner than coal power plants. Also the health hazards are actually much lesser than the exaggerated reports we hear on TV. We remember Chernobyl and Fukushima, because they are spectacular tragedies. But we don’t remember the slow deaths that coal based power plants are causing us every single day. Most activists who complain against nuclear power don’t have any solutions to offer. If we use more coal, they have a problem with that. There is only a limited power we can generate from hydro power. Solar, Tidal, Wind, biogas etc are still not commercially viable to produce on large scale. That’s why we must support Jaitapur whole heartedly. Let’s not get politics into everything.

If only we removed corruption, we wouldn’t need so much subsidies? That’s indeed true! In fact, it’s the story of most problems in India. If only we could eliminate corruption in the PDS, we would save a lot of wastage of resources. That’s why Nandan Nilekani’s UID project is so crucial. If this were implemented to cover all poor people, then the entire PDS system (where corruption abounds) could be scrapped. Poor people would get the dole (subsidy) directly into their bank accounts. Say the government wants to give the poor 20 litres of kerosene per month at Rs 10 per litre. So the poor pays only Rs 200 per month for this. Let’s say the real price of kerosene is Rs 50 per litre. So the government bears the subsidy of Rs 40 x 20 litres = Rs 800 per month on its account. Unfortunately, most of this kerosene is not delivered to the poor, but is siphoned off by the PDS shop owner for unfair gains. If however, the government simply gave Rs 800 into the bank accounts of the poor, then that money cannot be looted by the PDS network. The poor would add their Rs 200 and go to the market and buy their 20 litres of kerosene by paying Rs 1000. This is why the UID project is so crucial. It cuts out corruption totally (of course, there are some other problems attached to UID….). So we should support the UID project.

There are many other things we need to do to protect our future. For that, we need an intelligent debate. Unfortunately, the passion of the country is politics; not economics!

The real truth is that the petrol price hike will hurt PLUs (people like us)…..but it won’t hurt anyone else. Clearly, the government seems to be more focused on the poor (and that’s alright with me). To be fair, the government did announce a 7% increase in the DA for urban middle-class government employees before announcing the petrol price increase……

It’s the government’s job to build Hockey (and other sports) in India….

Yesterday’s drama with respect to the reward and recognition for a successful Indian hockey team gives us an opportunity to discuss what the role of the government in building sports in our country should be.

Without doubt, the Rs 25000 given as a “token of appreciation” was indeed just that – a small token. In a world where cricket stars win crores of rupees as reward and salary, this was like a slap on the face of the winning hockey team members. It’s not very often that the Hockey team wins an international tournament and a suitable reward would have been motivating to the team. The treatment of the Hockey team however is just one of the manifestations of how the government is failing in its duty of building a culture of sports in this country. The government often forgets that it’s the government’s job to build the sporting infrastructure in the country. It cannot hope for corporate investments to do that. It cannot wash its hands off this important duty. In fact, this should be the core part of the new sports bill that Maken wants to introduce.

Some very funny arguments were being floated yesterday on TV. Atul Wassan (average cricketer….now avid commentator) kept on repeating that there are no “free lunches” and that if Hockey India did not have the money to pay, how could it have paid more than Rs 25000 per player? In my view, he’s taking a very “technical” view of the matter. Of course, the money cannot be simply created out of thin air and paid out. But this is where the government has to take responsibility. It’s simply not correct to say that if the corporate sponsors are not there, then the sport should suffer. It’s simply not enough to say that if the sport doesn’t attract monies, then it must languish. It’s the other way round. The government must nurture the sport to a level where corporate interest is generated. After that, the government can withdraw and focus on something else. The job of the government is to build infrastructure and culture when none exists. After that, it can quietly exit.

That’s the whole idea even of the private-public joint model of economic development we have adopted. In the early years of India’s independence, when the private sector was too small to invest the kinds of monies that were required in building massive steel plants, power plants, fertilizer units etc, it was the government that had to step in. Many people believe that India “chose” the socialist model of economic development where the state controls most of the economic activity. Fact is that at least partly, the reason for choosing this model was that the private sector simply wasn’t capable enough to make any impact. The government had no option but to step in. It was the duty of the government to step in. A country’s economic development is squarely the responsibility of its government. Imagine if in those days, the government had just sat around complaining and said that the private sector was not doing its job and it was not the government’s job to develop the economy. The private sector was not capable of doing this job. But today, the government must get out of the sectors of the economy that have developed well and let the private sector take over. The private sector brings with it many efficiencies – better capital allocation, better work productivity and so on. The government must play the role of the catalyst in the early stages….after which it must reduce its role. I am not saying that the government must not recover its investments or make a profit on the same. It must. All I am saying is that the government must withdraw at the right time. Till that right time, the government must take the onus of development. Take the telecom sector for example. Many decades back, there were only two government telecom companies BSNL and MTNL. They provided lousy service but at least they had the money to invest to provide us some basic telephony services. Today, both these companies are irrelevant in the telecom sector. Our complaints today are not that the government got into BSNL and MTNL so many years back…..but that the government did not get out of these companies in time. If it had done so in time, it would have made a healthy profit on its investment.

It’s no different with hockey. These are early days in hockey’s development. What was once a developed sport in India has today become a forgotten one. At present, there is hardly any corporate sponsorship available for this exciting sport. It’s my belief that if the game were given a good chance to develop, then it has the potential to turn into a big game all over again. I have seen some great India-Pakistan hockey matches and they are thrilling. The best part about hockey is that it doesn’t need to change its format to be interesting to TV broadcasters (like cricket had to). The game is just 70 minutes long – the ideal length for a TV event. A night match can attract a lot of audiences in the stadiums also. Besides, hockey is faster paced that even football and it has the potential to arouse great nationalistic feelings. Most of the countries that play hockey are the same as the ones who play cricket and we’ve seen that a lot of national pride can be created while playing with these countries.

What the government needs to do is to nurture hockey for the next decade or so. Spend money on building international quality grounds and stadiums. Go to the schools to spot raw talent. Incentivize schools to build hockey grounds. Push our cities and towns to build more public hockey grounds. The government must sign on talented players; give them decent salaries so that good talent may consider taking up hockey as a career; rather than just as a casual pastime. It must organize tournaments in the country. It must spend money on TV production; even buy out TV time if required so that the matches can be telecast. It must get in foreign coaches, physios….the works. It is also not impossible for the government to start league hockey – again something that will raise the interest in hockey to above threshold levels. Net net, the government must play an important role in building the appropriate “environment” which encourages hockey to develop.

In less than a decade, the game of hockey will become self sustaining. The moment India starts doing reasonably well internationally – let’s say by first entering the Olympics top 16…..then by reaching the last 8 or last 4…..corporate interest will start. Once the audiences come, corporate sponsorship will follow. Once that happens, the government’s job should really be one of a regulator, a facilitator. It must make sure that the hockey federation does its job decently; there is no politics (like the one between HI and IHF) etc.

It’s not different for the other sports. Why is India just a single-sport country? Why can’t we do better in football? This is one of the most exciting sports in the world. Surely, it’s not our point that we don’t have the talent? Small countries like the UAE, Cameroon and Honduras have made an impact on the game. Why can’t India? My point is that it is not to do with talent; it is to do with the absence of an appropriate environment. And that’s squarely the job of the government to build. If the government did its job well, we would see a much bigger sporting culture emerge. At present, India has done reasonably well in sports which require less infrastructure. India has produced world-beating champions in chess, badminton, snooker, shooting and the like because these sports don’t require too much investment in creating facilities. It’s the bigger sports – hockey, football, swimming, gymnastics – which require big grounds, stadiums, flood lights etc that we have languished in. And unfortunately, these are the sports in which most medals are awarded at any international event like the Olympics. No surprise then why India performs so poorly at international sporting events.

The real truth is that Maken should not stop at giving away Rs 1.5 lacs to each player. That’s a pittance. The issue really is not about individual compensation. The issue is about the infrastructure in hockey. The issue is about too much of politics and the lack of investments; the lack of talent spotting; the lack of facilities; the lack of international exposure. This is what Maken should commit to doing next. This is what his bill must address. We’ll be waiting to hear from him…..

The real truth: First Advani, now Modi…..BJP attempts to change it...

The real truth: First Advani, now Modi…..BJP attempts to change it...: First Advani proposed a ridiculous anti-corruption yatra. Now Modi is proposing to go on a 3-day fast for communal harmony and peace! What’s...