Saturday, October 28, 2017

Recapitalization for the ship has sailed

Since Demonetisation, Modi government has undertaken series of reformative steps, which the government termed as “Structural change” in the Indian Economy, however, remain (until now) evasive on the wound it caused to the economy.
On 24th October, Finance Minister Arun Jaitley’s announced to infuse 2.11lakh crore into Public Sector Banks (PSBs) through Recapitalization and 7lakh crore investments on Mega Infrastructure projects. During this announcement, he said this move is unprecedented.  The announcement is indicating two issues; First, Modi Government finally though not in words but in action agreed that there exist a serious financial crisis, which needs huge and urgent financial liquidity push amounting to around 10lakh crore and secondly, Government’s reservation on the disclosure of Issuance and type of bonds implies, it is still unconfident whether this move gives positive result.
By the by, our discussion is neither on how the recapitalization works nor to re-present the statements which were equivocally hyped by the government. Before elaborating my point, as a citizen of India I only can expect that Modi Government’s another “unprecedented” move might bring a positive consequence, unlike previous restructurings. The fiscal infusion into the PSBs and investment on infrastructure is recommended step for countering economic slowdown, but under certain circumstances and for a certain objective.
Before thrash out where Modi Government has done its estimation wrong or say more precisely, shifted its priorities for political image building, I would like to quote C. Rangarajan who worked shoulder to shoulder with Dr. Manmohan Singh as RBI chief, “structural reforms could not be introduced unless a degree of stabilization was achieved. On the other hand, stabilization by itself would not be adequate to prevent the recurrence of a similar crisis in the future. (Reforms 2020, Last 20 Years, Next 20 Years)

In the year 2014-15 when Narendra Modi took oath as Prime Minister of India, the economy was not vibrant like 2004-2010, nevertheless a mixed situation. Industrial growth was 4.8% (reviving since 2011-12), service sector growth was 1.8% lowest in the last decade (except 2012-13, 2013-14), and Agriculture growth was also lowest (4.6%) inflation and CPI was lowest in the last 5 years, export was high (323.4 billion USD), capital formation was moderate (36%). The gross fiscal deficit was 4.09% and revenue deficit was 2.89% of the total Gross Domestic Product (GDP). Public consumption was high (7% of the GDP) than the private consumption (4.5% of GDP), mean manufacturing sector had depended more on government. One deciding factor was, people had lots of liquid cash on hand to invest, but lion's share was invested on Real Estate and Bullions.
It would be a mature step for the Modi Government to choose and address technically some of the key issues from a number of concerns like unemployment, fiscal deficit, trade deficit, reviving sick PSBs, boost to manufacturing and agriculture sector. Instead of doing this government undertook several measures simultaneously. Modi government had preferred the revival of sick PSBs and sticking to fiscal consolidation. In the process, it had called for minimum government, maximum governance. To compensate the spending on manufacture and infrastructure it supportively allowed FDI through “Make in India” scheme. But till 2016 end, government for some mysterious reason failed to take a time-bound appropriate step to resolve the issues. Subsequently, this worsened the situation of the ailing sectors. The exasperated Modi Government had chosen a shortcut way i.e. “Demonetisation”. The aftermath situation can be rightly described by a quote of Gary Busey, “If you take shortcuts, you get cut short.”
In the year 2014-15, the total notes in circulation were 14483.12INR Billion and the notes held in banks was 621.31INR Billion and the Statutory Liquidity Ratio (SLR) was 22.50%. Just before the Demonetisation the total money in circulation “unprecedentedly” increased to 16634.63 INR Billion and notes held in banking department was 662.09INR Billion as per the Statutory Liquidity Ratio adjusted to 20.75%. Repo Rate (6.25%) and reverse Repo (5.75%) Rate was also an all-time low. It seems that Government itself allowed people to take more credit from the Banks. In such situation, It seems highly suspicious that why Modi Government all of sudden increased the Notes in Circulation and overnight demonetised them. By the by demonetisation only did one thing it increased the currency availability in the banks considerably.
On 26th October 2017, Arundhati Bhattacharya, the former head of State Bank of India (SBI) India’s largest PSB said in a media event that If they prepare extra for anything, then its fruit or result was better. Obviously, if there was more preparation (for demonetisation), then definitely it would have been less strenuous on us.
When the whole Economy was yet to heal from the onslaught of demonetisation, Modi government has pushed another ambitious reformation, Goods and Service Tax (GST) with a mid-night celebration in Parliament house. GST, which Narendra Modi, PM of India termed as Good and Simple Tax made such a mess that GST council made more than 7 amendments including tax structures within four months since its implementation on 1st July 2017. The government, as usual practice, hide the weaknesses but puffed that the first quarter since the roll out the Indirect tax collection rose than the previous years. However, in reality, it deliberately concealed the amount to be returned as input credit. An Independent estimation revealed that there are more than 20million job loss and more than 20 thousand small and medium industries closed down after the twin blow of demonetisation and GST.
Let’s have a look at the data provided by the RBI in his Handbook-2017, in 2016-17 financial years, Gross bank credit outstanding with Agriculture and allied sector is 9923.87INR Billion, MSME (26800INR Billion), Retail trade (2346.87INR Billion). Many sectors (except manufacturing 2014-15 3800INR Billion, 2015-16 3714 INR Billion and 3697 INR Billion) has taken new credit to start or boost their business before the GST rollout. Similarly, except Chemicals and Chemical products, Basic Metal and metal products, Rubber, Plastic & their products, and Leather and leather products, credit inflow to all other industry sectors have been decreasing since 2013-14. A government should be more cautious while bringing out any painstaking financial reforms when only a few sectors are optimistic in their business. Instead of widening the positive outlook it allowed to do more economic as well as policy blunders. For example, the BJP and its rightwing Hindutva ideologues went after Cow protection, which almost devastated the Leather and leather-based industry, which had been on the considerable growth track.
When most of the industries not optimistic and don’t find useful to turn the face towards Banks for their business, Modi government infused a lump sum amount in the PSBs. As SBI’s new chairman Rajnish Kumar in an interview pointed out that after the recapitalisation Bank might give more priority to manufacturing industries like steel and cement and less interest rate for certain baskets. This presumption came forward because of government, on the other hand, investing around 7 lakh crore in the mega infrastructure Projects like Bharatmala in the next 5 years. It mean both government and Banks shifted their priorities to certain areas of interests. This will be another blunder, as the Investment on infrastructure gives fiscal gain at a distant future also increase the fiscal deficit, as per the report India’s fiscal deficit during April-August touched 96.1% of the budget estimate for the full fiscal year that ends on March 2018. The deficit was 76.4% of the full year target during the same period a year ago.   
Since the Recapitalisation initiative for Modi government is not new as I have pointed out earlier in this article. In 2014-15, it launched one of the ambitious Indradhanush scheme to rescue the PSBs which are burdened by the Bad loans and NPAs. It planned to infuse 70,000crore over the four years. Consequently, the Recapitalization scheme of Modi government is not at all unprecedented, but the amount which Finance Ministry put forth. Recapitalization scheme is not new and also at hand fiscal activity to bail out the banking sector, but it is very crucial how to bailout without further burden on the state exchequer.
While giving clarification to this Finance Minister Jaitley said, the Rs 2.11 lakh crore capital infusions into the banking sector will come over the next two years. It will come in three parts. The government itself will directly pay banks Rs 18,000 crore by buying their shares. It will also encourage banks to raise Rs 58,000 crore from the market. But the bulk of the amount – Rs 1.35 lakh crore – is expected to come from recapitalisation bonds.
According to Reserve Bank of India estimates, the total excess deposits accrued to the banking system due to demonetisation was in the range of Rs 2.8 lakh crores to Rs 4.3 lakh crore. It is these excess deposits that the banks are expected to use to buy the recapitalisation bonds.
Many economists and financial advisors had exhorted Modi Government to increase liquidity ratio to make economy float safely in the crisis. Conversely, Modi government allowed a moderate 10k crore capital infusion for the PSBs in the 2017 budget and push for consolidation of the banking sector. But all of the sudden walling the process of consolidation of PSBs, not bringing out an evolutionary mechanism for debt recovery in a haste government is going to infuse huge money in the banks, even though it is not sufficient. According to the Fitch ratings on September 2017, by 31 March 2019, Indian PSBs need 65USD billion (around 4lakh 23 thousand crores) to meet Basel III capital standards.
In 18th November 2016 when asked in Loka Sabha to provide details of the Loan defaulters and give data state-wise  The Union government in his answer remained evasive to provide the names and state-wise data. According to the information given by Ministry of finance, in 2013-14 the wilful defaulters were 6336 with an amount of 45,731INR Crore which grew considerably in 2015-16 to 8,167 with an amount of 76,685INR Crore. The recovery and conviction rate were also not satisfactory.
According to the information given by Care Ratings on the Non-Performing Assets (NPAs) of PSBs, within 1 and quarter years the NPA ratio has grown from 7.69% to 10.21% in June 2017. Data shows soon after the GST roll out the NPAs increased manifold. There is an understandable reason behind it, as government delayed the repayment of input credit, Business needs more credit to run its business forward. Although RBI, not changed its interest rate, it is not easy to lend money to all the sectors.
Secondly, the difficulty of distribution of the recapitalisation fund to the banks. Since, till June 2017, the 11 PSBs account for a share of 67% of the total NPAs 829,338INR Crore. SBI, PNB, BOI, IDBI, BoB account for a share of 47.4% totalling to 3,93,154 INR crore.  If the government will focus on NPAs of PSBs only the state-owned banks and other cooperative banks will suffer collaterally as most state governments are not in a condition to bail out their own banks.  

I’m going to conclude by quoting Johan O’ Donohue, “Our trust in the future has lost its innocence. We know now that anything can happen from one minute to the next. Politics, Religion, economics, and the institutions of family and community all have become abruptly unsure.” 

Friday, October 20, 2017

FDI In India: Mouth filling but a Vaulting Horse

For the first time on August 17 this year, Astro-Physicists, Scientist for the first time detected the collision of two neutron stars, which happened at a distance of 130million light years from the earth. They also found that the collision also produced gravitational waves, light with an abundance of precious metal like Gold, platinum. The most astounding galactic activity divulged on 16th October, after much research and analysis. Where the precious metals went? Have we received the dust of those precious metals? If received, how much? These questions may seem to be much weird and irrelevant to our discussion
Let’s assume that the collision of those neutron stars is like allowing Foreign Direct Investment (FDI) and its impact on a prevailing economy. Which has some immediate effect and some might be detected in the remote past. After the acceptance of Globalisation and subsequent Economic Liberalisation, Every developing country believed that FDI is like “a cosmic scale atom Smasher of energies for beyond humans ever will be capable to build”( what scientist described the Neutron stars collision) which can bring loads of fortunes to their economy. Yes, of course, since its implementation the FDIs proving as boosters to the economy of the developing and third world countries. All are much pleased with its short-term gains, but like the neutron stars collision many of the issues yet to be experienced. Some of them experienced but remain without explanation. 
Now, come precisely to our topic. I have studied many researched articles and papers on FDI, 80% of them equivocal on certain pros and cons. For the last two decades, since the implementation of FDI in India, the protests and criticisms on FDI remain almost limited to the Political debates. There are research works, but most of them lack inductive reasoning or authentic micro-level case studies on the FDI and its impact on the economy.
Indian Government in 1966 and 1985 tried to allow FDI but it failed.  In the late 1990s, during PV Narshima Rao(PMO)-Dr. Manmohan Singh(FM) severely debt-ridden India allowed FDI under the structural economic reform process. In 2006, under Dr Manmohan Singh(PMO) and P. Chidambaram(FM) further liberalised the FDI inflow through an automatic process, which doesn't need Government Permission but a compliance to Reserve Bank of India (RBI).  In 2013, India government made almost all the sectors open to the FDIs. In the Last two years, Under the Modi Government, it gets much enhancement with high voltage publicity on the name of “Make in India”. The Economic doldrums which arise after the Demonetisation and GST, Modi Government jumped quickly with a data sheet to prove that these reformations increased the FDI inflows. But In 2015, the India overtook China and US as the top destination for FDI.
The Organisation for Economic Cooperation and Development (OECD) defines FDI as to take control of owning 10% or more of the business. Businesses that make foreign direct investment are often called as Multi-National Corporations (MNCs) or Multinational Enterprises (MNEs). An MNE may make a direct investment by creating a new foreign enterprise, which called Greenfield investment or by the acquisition of a foreign firm, either called an acquisition of or Brownfield investment.
Since its implementation, Indian Government insisting on the Technological Transformation/up-gradation, Employment Generation, easing Demand-Supply chain, Revenue Generation besides there is a belief that FDI can be a tremendous source of External Capital which can lead economic development.
Now come to the statistical figures, Research works like Sirari and Bohra (2011) on FDI & growth of service sector in India pointed out the growth of service sector to GDP is directly proportional to FDI. I’m here to point out some casual relationship between gloomy economic issues directly linked to FDI. For it, I’m taking three sectors Innovation, Agriculture, and Micro and small Industries especially cottage industries in India.
Mr. Mukharjee In his research paper quoting  Coughlin, Terza and Aromdee (1989, United States) said that the number of potential sites, state per capita income, manufacturing density within a state, better transportation infrastructure, higher unemployment rates and higher expenditures to attract FDI were positively linked to FDI flows. On the other hand, higher wages and higher tax rates had a negative impact on FDI flows.
However, In the Chinese context, based on panel data covering 98 hinterland cities of China for the years 1999 to 2005, Luo et al (2008) found that well-established factors such as natural resources and low labour costs were not important in determining FDI flows to China’s hinterland. Instead, policy incentives and industrial agglomerates were the most important determining factors for FDI flows.
There is no fixed rule which can attract FDI. It depends upon the variety of economic and Political situation of the invested countries. However, two things are noticeable from the above observations, firstly, the Investors have more decisive role than the government of the invested countries, and secondly, the major attraction for the FDI is low input cost both of Material and Human resources for production and Market. It can be explicitly concluded that the Invested country is always at the receiving end.
When we come to our own country, the FDI inflows to it dominated by the Automatic Route and followed by the Reinvested Earnings and acquisition of shares. FDI through Government approval route is gradually declining year on year basis (RBI, Atri Mukherjee).
Fig-1
In the initial years, the FDI was dominated by the retail sector, but later it is shifted to the Service sector. In 2014-15 the FDI inflows to service sector were INR27,369 Cr, in 2015-16 it increased to INR 45,415 Cr and during 2016-17 (March 31) it is INR58, 214 Cr. Between 2000 and 2017 total FDI inflows is INR316,568 Cr, which is highest among any other investment. This is followed by Computer Software & Hardware, Construction Development and Built-up Infrastructure, telecommunication, Automobile Industry and Drugs & Pharmaceuticals. 
But the India’s International Trade (Export and Import) largely dominated by Mineral fuels, Mineral oils (35% of the total imported Goods and 20% of Exported goods) followed by pearls, precious and semi-precious stones (11% & 12% ) and the top destination for export is USA and UAE, which is around 27% of the total exports. While the top two Importers to India are China and UAE, both contributed 22% of the total imports. It shows that in India, the sectors which attract highest FDI are not helping much in the international trade rather targeting domestic market. Now I place an example how the government is totally zilch on the Innovation and technological up-gradation of Indigenous products. The Lather and Lather products accounted almost 21% of the total exports but the FDI inflow to it is negligible i.e. .02%.
As said by the FDI fact sheet (till 2017, March 31), Government of India, since 2000 the Maharashtra (with some varies) was the topmost destination of FDI inflows with 31% of total inflows to India, followed by Punjab/Haryana (New Delhi 20%) , Tamil Nadu(7%), Karnataka(7%), Gujarat(5%) and Andhra Pradesh(4%). It is conspicuous that the economically advanced states receive Lion’s Share of FDI inflows.
Nunnenkamp and Stracke (2007) found a significant positive correlation of FDI with per capita income, population density, per capita bank deposits, telephone density, level of education and per capita net value added in manufacturing in India.
Fig-2
When we are talking about the employment and income growth, the Per capita FDI inflows has no direct link or an overlapping link to the per capita NSDP or Annual wages per worker. Andaman & Nicobar Island has 0% per capita FDI inflow during 2010-11 but the Per capita NSDP 76,883INR and annual wages per worker is 65,831INR, but during the same period Andhra Pradesh received 679INR per capita FDI inflow but the per capita NSDP is much below than A&N i.e. 62, 912INR and annual wages per worker is 61,007INR. Similarly, Goa Received highest per capita FDI inflows and its per capita NSDP is 1, 68,572 INR and annual wages per worker is 1, 26,788 INR. Although Jharkhand got 0% per capita FDI inflow and its annual wages per worker is much higher than that of Goa i.e. 1, 49,847 INR.
Fig-3
Now come to the Agriculture and Allied sector. The FDI inflows to it are below .58%. The total foreign investment is on fertilizers are .17%, Agriculture machinery (.11%), Food processing industries 2.27% (but most of the food processing industries dominated by meat and seafood). There are a thousand varieties of indigenous seeds and farm animals breeds but very few got patented. Now the foreign investment on Genetic Modified seeds is being encouraged by the Government. Some research works on Madhya Pradesh accused the forceful implementation of GM farming to the growing Farmers' suicide incident (Fig-2). At some point, the most developed States, which also attracts a major portion of FDI is unavoidably linked with Farmer deaths. (Fig-3)
Fig-4
The incoherent government policy on the Agriculture already weakened the Farmer's economy. Now to make FDI more attractive to Foreign Investor's government putting unreasonable pressure on the land to create a conducive environment. 
The investment procedures and double taxation avoidance treaties are the major cause of tax heavens. But the government has paid little interest to eradicate the menace. Even Last year, at several occasions Modi Government reiterated to bring reformations in the Mauritius Route (Fig-4) in FDI but no authentic steps have been taken so far. Rather the FDI has found a new route i.e. Singapore to avoid taxation in India. In the next article, we will discuss on the dark side of this international investment routes. 

Friday, October 13, 2017

Indian Perestroika: From this point to future

After 70 years, India going through a new phase. Government under Narendra Modi has tried to bring a structural change of the entire economic, social and governmental setup mostly influenced by the right-wing ideologies. Since 2014, India has also experienced many reformations some of which are government induced and some independently through legal and international aspects. Can all these reformations bring a better future? There is no simple answer to it, but a section is Hopeful and another section is skeptical to it.
After 3 years, we are in the middle of the evolution of Economical, Social, legal and political policies. However, the situation is such that we neither rewind the process nor has same enthusiasm to embrace all of them. Now be specific to the question, can this Perestroika of Indian Economy move forward with the same spirit? International Monetary Fund (IMF) in its recent world economic outlook and the World Bank both are positive but with an asterisk mark, which clearly stated: “if government thrust for the change remains unchanged”. Will the Government resolution remain same? It is a big question and also a game changer. Many International and national financial and governmental policy watchers including IMF and WB positive towards Modi Government for a single most powerful reason that it has a strength of democratic numbers, unlike previous government. In the contrary the forecast based on the mechanical analysis of statistical data only which has complete blind towards several relative issues like, the commitment of government machinery, implementation strategy,  and people’s emotional response to the pros and cons of the policies.
Policies are the binding force between centre and state, more precisely it determined the quality of the relationship between Government and its people, which in turn establish a collective effort for the nation’s development. Besides this, most of the economic policies are designed to solve particular problems at a particular time. Not all policies are a panacea to the plethora of problems for all the times. So, for the sustainability of the economic development, we have only two options, allow the policies for continuous evolution or formulate it with a collective approach. But, the fundamental predicament of the policies which brought disasters and severe criticism is Modi government’s plan to build watertight and congruent policy order with an aim for universal application throughout time (!) in a simple sentence, Modi Government unlikely to accept India as a unity of diversified interests and economic life.  
Of Late, the intellect of the Modi Government accepted the truth. On 11th of this month, in the 1st meeting of Economic Advisory Council (EAC) to Prime Minister emphasised the government to stay firm on the reformation but recommended to evaluate the policies and ready to take suggestions from beyond the rightwing contours. However, when the government has a congenital right-wing instinct and within a few months going to face series of assembly elections and general election, will this suggestion be implemented with its true spirit? The voters of 2019 will not be like 2014’s, the Image of the BJP is diminishing, Voters trust much strained due to promiscuous promises. In such condition, these democratic exercises have largely determined the future of the policies and the ability of the government.
Even if we presumed that the Modi Government will pass through unscathed in the next 2 years, the IMF figures are not so high-flying for India in comparison to the other nations with a similar economic scenario.
India's forecast in IMF's World Economic Outlook, 2017

In 2009, the year when the whole world was under the grip of severe economic recession, India’s total investment was 36.480 percentage of the GDP. In the current year, it further declined to 29.936 and as per the IMF forecast in 2022 it will be 30.936. It will be wrong to give a reason that with an increase of the government investment in infrastructure and productivity of the human resources the forecast will be altered. Without proper utilisation of the human resources and private investment, the government spending will be more than the revenue and subsequent decrease in savings.
This situation further pointed out by IMF, in 2009, the Gross National Savings (GNS) was 33.665 percentage of GDP. In 2017, it is 28.558 and in 2022 it will be 27.939 (% GDP). This implies government is spending is more its income than it produces.
The government revenue in the current year is 21.130 percentage of GDP while it was 18.518 in 2009. In 2022 it will be 21.326. Mean, the subsequent years the revenue generation is not increasing but will remain static. In contrary to the static revenue generation, the government expenditure is decreasing around 10% year-on-year basis. In 2009, the expenditure was 28,052, in 2017 it is 27,488 and in 2022 it will be 26,683. But recently, more WB supported SANKALP and STRIVE scheme and increase of salaries by implementing 7th pay commission recommendations, the government showed its keenness for the more government spending to counter GDP growth. This is also somehow against to the suggestions of the IMF and detrimental to the future sustainable and inclusive growth of India.
Further, the declining government savings implies two issues, one, in future manufacturing industry will be more dependent on the government purchases and second, and people will spend more on consumption. If we take the 2nd issue, it implies the growing CPI inflation in coming years.
Although IMF is hopeful for the Increase of GDP, it will reach 300,223,330 Billion INR (at current price) than the current 167,184,181 billion INR. Meanwhile, the data also indicates that the GDP deflator index also increasing. In 2009, it was 87.183 and current year it is 128.518 and in 2022 it is forecasted to 158.002. This implies two major things, the loopholes of the government planning to subdue the declining GDP and increasing the cost of living. Increasing cost of living is a clear sign of an increase of Poor-Rich gap and expansion of population under chronic poverty.
While, Modi government tries to blend its Right-wing economic model to the neoliberalism, but to tackle the economic problem it follows the Keynes model. If the government went further without any amendment to the present economic model, in near future government will be more blamed. If in order to gain mass popularity, the government would reduce or avoid taxation (Land, Gold, Oil not under the GST purview) and then meet the revenue shortfall by the creation of more artificial money, eventually it will lead more corruption like previous government coupled with a maladroit economic situation.

Monday, October 9, 2017

Modi Government in Reality-Shock


How much Modi Government trying to stifle the growing piques on the Jay shah's alleged financial gain issue, it is another incident which further exposed the Modi Government to the Reality-Shock Syndrome. Recently, the RBI’s Quarterly Policy Report and Earlier to this the Centre’s financial report on GDP and Economic Survey already made the Government incarcerated to the situation.
Prime Minister Narendra DB Modi and BJP National President Amit Shah (File Photo)
Jay AmitBhai Shah, the only son of most powerful Bharatiya Janata Party (BJP) national president Amit Shah. The Wire, an online media house uncovered the alleged financial misappropriation which gives Jay a whopping 16,000 times monetary gain within 2 years. The amount of truth behind the accusation is yet to be proved (if Modi Government or a judicial proceeding wants). It has put an incorrigible question mark on the submission of the Modi Government and its precision on corruption. Although the issue is not related to any members of the treasury bench for which the government to take the blame, yet it is the subject directly impinge on the party’s very sensitive part, its image.
Before going to the details, it is relevant to quote Tom peters and Nancy Austin from their book “A passion for excellence: The leadership difference”. 
  • People have ego and developmental needs ...and they will commit themselves only to the extent that they can see ways of satisfying these needs.
  • People cannot be truly motivated by anyone else...That door is locked from inside.
  • When people are in an atmosphere of Trust, they will put themselves at risk, only through risk is there growth....reward...self-confidence...leadership.
Now, come straight to the 3rd point, since 2014 Election Campaign Narendra DB Modi time again has reiterated that the “corruption” is the biggest enemy of the country and it is the only hurdle to India’s development. He promised that his mission as Prime Minister is not to enjoy power but to uproot it. He also cautioned that the fight against corruption is not so easy and called the people’s support to be ready to bear the difficulties patiently during these fighting.  People unquestionably believed his Magniloquence. Extended support not only during demonetisation but also in his every disastrous reformation.
Contrary to the situation, during the same time, in recession stuck Brazil People came out to the streets and forced the government to rollback demonetisation. In Brazil, there was widespread resentment, spontaneous Protest sparked overnight. In many Western Countries, it is evident that if the government failed in any economic administration, the people’s remonstration is intense. But, in India the situation is different. People are more forbearing and indulgent towards such situations.
Now, come to the 2nd point, It seems that soon after 4 months of the implementation of demonetisation people de-motivated slowly but surely. As most of the economic reforms could not substantiate the Modi Government’s claim on corruption, Black-Money, Terrorism, Parallel economy, digital transaction, except the government forced surroundings. Rather the economic reforms posed as a stumbling block to the big ticket schemes like “Startup India”, “Make in India”, “Smart City Mission”, and “Skill Development”. Besides this, Modi-Government unable to boost the Export of indigenous products except for software
The Spice of India, most demanding products faced severe hardship during all these years. In the year, 2016-17 (Apr-June) the export reduced to 621.78US$ from 2432.85US $ (2014-15). Agriculture and Processed Food Products Export Development Authority (APEDA) Export performance abridged. In the year 2015-16, total export of Agri and Allied products was 43,369.62INR Cr which is reduced to 6,398INR Cr in 2016-17. PEC, a Government company, primarily engaged in export of projects, engineering equipment and manufactured goods, defense equipment & stores and import of industrial raw materials, bullion and agro commodities also faced financial constraints. Sales turnover reduced from 9780INR Cr (2013-14) to 3746 INR Cr (2016-17). Similarly, the sectors which declined are Processed meat (-77%), Leather and leather manufactures (-6.08%), Chemical and Related Products (-73%). Plastic & Rubber Articles (-2.68%), Base metals (like Iron, Aluminium, Copper) (-6.25%), except machine and Telecom instruments the export of other electronic items reduced. In the IT sector, Software service export growth dropped off (5.6% in 2012-13 to -.7% in 2016-17), IT-BPM export growth reduced from 11.1% (2012) to 7.8% (2017).  All these sectors accounted 40% of the total exported goods and services.
Last but foremost, In the above mentioned psychological traits of people in relation to an organization or a nation, the first assertion is on the people’s ego and development needs, which now are dwindling. As now, when people see that the Modi Government is noiseless on the perpetrators of corruption, Black Money rather their own men has been accused of the series of corruption charges. Employment is not generated as per the Election Manifesto but to a certain extent adding numbers to the unemployment.
It seems that the chest thumping on development and projecting himself “Vikash Purush” (Messiah of development) won’t produce development. The statistical figures of the government itself negate the claim of the Modi Government.  It shows that either Government is suffering from Hemispatial neglect Syndrome (a person who could not see or recognise the other half of the things) or it is a deliberated attempt of manipulation of facts, doctored data and managed publicity to hide its weakness.
For example, the Modi government’s one of the most hyped programs is the rural electrification scheme. The government maintained that even after 70years of Independence many villages having without electricity and they are doing a tremendous job to make all of them electrified. But in reality, before 2014, except Jharkhanda, Bihar, Odisha, UP, WB and Assam all the states achieved electrification between 90-98%.
In the Human development index (HDI) India already gained 4 positions before 4 and within last 3 years the condition not improved well even after the increase of budgetary allocation on social welfare schemes. According to the economic survey report (2016-17) part-2, Indonesia, Brazil, Sri Lanka and Malaysia are far better-performed nations than India. 
T S Venketaraman (Management Crises and Strategies for Growth, The Hindu Speaks on Management) rightly quotes, "... the financial difficulty is a result of several managerial mistakes made months or sometimes years ago. If a manager has misused funds once, he will do the same next time if he is given more money." 

Friday, October 6, 2017

How much optimistic is Modinomics?


On 5th October, almost one year after the implementation of Demonetisation, addressing the company secretaries Narendra DB Modi, The Prime Minister of India said, some get a sound sleep at night only after proliferate Pessimistic notion about the Government and on the Economy. According to the Human behavioral psychology, it is a sign of self-soothing expression, but his remark to the critics really mean?
Before digging into the Prime Minister Narendra DB Modi’s Economic policy and how optimistically it is taking the Country’s Economy growth forward, it is amusingly relevant to point out the possible inspiration which shaped his understanding.
Rashtriya Swayamsevak Samgha (RSS) which is the topmost advisory council to the present day BJP government on Statecraft and External affairs mostly influenced by Kautilya @Chanakya. There is no wrong to get inspiration from the great man, who laid the foundation stone of the Democratic Monarchical system and developed a pan Indian Spirit. But it is something abnormal with the brain that thinks which were relevant some 1500yrs ago can be implemented nowadays with exact significance.
Mr. Modi’s sudden announcement of Demonetisation, surprising announcement of various schemes, his Religio-Political gimmicks all are understandable from a chapter of Artha Shastra; the sloka (5.2.39-45) narrates how to exploit the gullibility of the people.(Kautilya- The Artha Shastra, L N Rangarajan, penguin)These include:
-Building overnight, as if it happened by a miracle, a temple or a sanctuary and promote the holding of fairs and festivals in honour of the miraculous deity;
- Exploiting an unnatural happening, such as an unseasonal flower or fruit, by making it into a divine phenomenon;
- Using secret agents to frighten people into making offerings to drive away an evil spirit;
- Playing tricks on people by showing a cobra apparently with many heads, or a stone cobra coming alive;
- selling remedies against evil occult manifestations.
If people are not taken in so easily, they should be frightened into doing so.
The next chapter also elaborates (5.2. 46-51) other methods of cheating to collect revenue. 
The Artha Shastra is not purely like modern day Economics. It is a treatise on statecraft and affairs of government and governed. Narendra Modi led government at the centre lacks this basic understanding about the economics. Why and How?

Firstly, the entire economic edifice and the administrative setup both good and bad are inherited from the previous government. But the Modi government has been evasive on this theory. Except for one or two instances, for some unavoidable circumstances, Modi government accepted the truth.
Secondly, which is, of course, the most perilous part that they always apprehensive to prove their stand right.
There may be a strong reason behind such approach; Firstly, BJP came to power by tarnishing every activity, schemes of the Congress-led UPA government, even though most of them were quite good and noble.  So it will backfire if they recognise it publicly. Secondly, if they recognise the legacy of the previous government, there leaves little room for them to prove they are doing the best.
This is the fundamental mistake of the Modi government which makes them further secretive in making economic and administrative affairs.
Since my focus is on the economic situation, with an apology I am taking out the administrative and Political issues and reserve it for another article.
Economics is Primary cogwheel of a person’s life. Throughout one’s life, economics will play a major role in determining what one do and how happy he is doing it. Not only individual’s life Economics equally vital for a country. It influences the affairs of the government and determines the wellbeing of the nation as a whole.
The “Laissez-faire” philosophy which since the beginning of the 19th century has been the driving force to determine the course of democracy and the role of the government is now becoming more complex. The advancement of new technologies basically Digitisation there is a growing demand for the de-materialization, de-monetisation, and democratisation of information, currency, and resources. The contours of Economics are also expanding and overlapping other areas. As the Income is largely depending on how effectively the nation or the individual participating in the economic process. Every step towards a more intricate economy brings new problems and economic interrelationships.
However, it seems that Modi government has learned the importance of the above facts. Hence with more enthusiasm, it is trying to implement the digital transactions. It demonetised, Simplified the Tax regime, wants to store the electronic database of every individual’s. But the Truth is, all these noble economic steps inherited from the previous government. Since Modi Government inherited the idea only not the understanding, it is facing a setback in every implementation.
In my previous article, “countering the economic crisis, Modi govt is on the horns of dilemma” I have analysed how India had made the standstill economy vibrant and successfully countered the 2008- 2010 global financial crisis and put the country’s GDP all-time high at +9%. Modi Government inherited a hale and hearty economy with some revolutionary schemes to implement further. The concept of the healthy economic scenario is neither a big leap nor total shifting of the track, but a sustainable and equitable development.
Between 2004 and 2012 most states did well in poverty alleviation. The Reduction of the poverty was 10 to 15 percent. Although the poverty in some states like Nagaland, Mizoram, Arunachal Pradesh, Gujarat increased but the well known poor states like Bihar, MP, UP, Odisha, Rajasthan improved their “poverty reduction rank.” Other government data indicates that the increase in the urban poverty and large-scale migration to urban areas.
An economic life of a rural person is quite different from an urbanite. Even though they earn less than their urban counterparts they are somehow protected from the immediate impact of the unstable economic situation. Since, they highly relied on the simple life, dependence on home/local produced foods/goods, their monotonous diet, etc. Most of the Village folks live out his years never going more than 25miles (a rough estimation) from his home village.

Most of the Demonetisation sufferers are the urban poor and lower income groups, who left the village and earned their livelihood from the unorganised sector. There is no authentic data to show how much the unorganised sector affected by the demonetisation disaster. What the figures government are disseminating, likely to hoodwink the faults.
Many ministers including Finance minister, High rank officers narrated it was to give bolt to “Parallel Economy” run by “Black Money.” But there is no applied term in economics to describe Black Money; it is unaccounted money or untaxed money laundered in Tax heavens. The Parallel economy in its general usage refers to Black market. But in economics it has no negative sense, but a definition to bring more effective monitoring techniques. Economists like Feige defined it as, “hidden economy as including those economic activities which go unreported or are unmeasured by the prevailing techniques for monitoring economic activities.”
However, it is sure that the role of Hard currency for most of the activities in Black Market is highly implausible. On the other side there is an innocent world, where a Parallel economy has prevailed since time immemorial. It is the rural area which suffered most (though the impact varies from state to state depending upon the economic activities). How scanty the earning, it is hard earned from the unorganised sector. It never deposited in Banks, maneuvered by the unregistered local money lenders.
My firsthand experience says the demonetisation triggered the reverse migration. Many returned to the village. Ironically, before demonetisation, Modi Government contracted the budget allocation for many social welfare schemes. Due to contraction of the revenue allocation State governments were reluctant to spend on Infrastructure. The mining sector was under regression. The Market was highly susceptible because of the possible implementation of new tax order. Agriculture was under stress. Those who returned to villages found no employment immediately. For them, two optioned opened either they borrow money or sell and mortgage what they have. Modi Government totally closed its eye to all these factors.
Good Economy produces two things one is “Constant” another is “Equilibrium”. In Constant, like a cogwheel, it pulsates other things to run. Secondly, when a new economic composition brought forth it must give rise to a state of equilibrium. If the new economic order brings any capricious result it never termed as good economy.
In contrary, Modi Government arguably unwavering by debating that it is quite common to protest any novel Idea. However, this is rhetoric filled with a fallacy of Logic and reason.
Without rectification, the economic order, either in deliberation to implement its political agenda or to satiate its inferiority complex Modi Government has unabated in committing series of economic mistakes. It is a general sense of understanding that when the economic condition is highly volatile, one should not go for external aggression or become a perpetrator to the warlike situation. But Modi Government increased Defense budget, Undergone two warlike situations – Pathankot and Doklam Standoff, did surgical strikes. Conversely, in a fully employed economy, we must choose between guns and butter, If we use a big chunk of our productive resource for national defense our standard of living in civilian good is going to be correspondingly lower.
It is quite amazing that in one hand Modi government is talking to take India to a new height and showing dreams to make it Master of the World (Viswa Guru), on the other hand, it is tightening the noose around a healthy economy.
Before concluding my analysis, it is relevant to point out a major issue which may bring disaster to the Indian economy in the near future. As a close watcher of the world especially Indian Economy, I felt that the consumer behaviour of the Indians highly manipulated not by the market but by the Ruling Party (!). The demand for the variant goods now squeezed (may be due to various economic reasons) but there is a selective dissemination of demands, orientation for what to choose and what not to be chosen, imposed preference for a particular variety of goods. When we are competing with the world especially a neighboring country (China) which is very strong in the retail chain, such practice may bring the catastrophic result to many MSME sector and Innovations. It is imperative from the fact world market is skeptical to the “Make in India” products; Even The country’s own defense sector is not willing to absorb it.
Last though not the least, Now Modi Government planning for another blunder. It proposed to hold simultaneous elections. The argument for it is to reduce the burden of expenditure. But Modi Government should not forget that the Economy is a perennial process. The reformation only can be fruitful when you work persistently by remaining on the track. The early election may in distance future give some relaxation to the economy but the state exchequer which is already under the stress could be more brittle with this step.

By general agreement, it is the job of government to establish and enforce the basic rules to enable men to deal effectively together. Without understanding this, the slogan “collective effort, inclusive growth” will be an epithet of the abysmal dismay of Indian Economy.