The Needle’s Eye
The Beef With The Indian Economy
Published date: 8th Oct 2015, The Economic Times
View PDFOver the past week, I have been struck by the helplessness of the men leading the world’s two biggest democracies.
There is a major difference, though: President Barack Obama has tried, and failed, to change America’s gun control laws as one mass shooting is followed closely by another. After last week’s massacre at an Oregon col. Lege, he spoke out eloquently and wished that things would change, but thoughts and prayers did not capture “the heartache and anger and grief that we should feel”.
Prime Minister Narendra Modi, on the other hand, has been silent about his helplessness. He does not need to try to change any laws, at least not at the moment. After all the Constitution promises every Indian liberty of thought, expression, belief, faith and worship in its Preamble; Article 14 guarantees equality before law; and Article 25 promises freedom of religion. Unlike in the United States, where the Second Amendment gives every American the right to bear arms, leading, as Obama noted, to more firearms than people.
Modi has chosen to not speak at all about last week’s lynching of a Muslim man on the outskirts of Delhi. This is because he finds himself on the horns of a dilemma. He has attacked cow slaughter, cattle smuggling, and the ‘pink revolution’ of meat exports, both as Gujarat Chief Minister Modi and as PM Candidate Modi. As for the Preamble, the word ‘secular’ in ‘Sovreign, socialist, secular, democratic republic’ was inserted by Indira Gandhi during the Emergency. After he heard a moving, and chaste, rendition of Sanskrit hymns by Irish children in Dublin on September 23, Modi joked: “It is a matter of happiness that we can do this in Ireland. If we had done this in India…questions would have been raised about secularism.”
Yes, secularism has become a term of disparagement in today’s India. If he ever gains a two-thirds majority in both houses of parliament, and across the states, Modi could try to put his permanent stamp on social change in India. He could amend the Preamble, bring in a uniform civil code, ban religion-based schools (whether they be madrassas, Saraswati Shishu Mandirs, or seminaries of all stripes), and outlaw caste-based reservations in education and jobs in pursuit of a truly meritocratic, equal-opportunity non-denominational nation.
Right now, however, the killing of Mohammad Akhlaq has unleashed a firestorm. Looking back, it is almost as if our politics of provocation follow a calendar schedule. Exactly one year ago, also after some major foreign-pokey successes of Modi’s, there was a surge of divisive talk by Bharatiya Janata Party worthies like Yogi Adityanath, Sakshi Maharaj and Sangeet Som. This year this trio has been joined by the recently emboldened Culture Minister, Mahesh Sharma, as well as junior agriculture minister Sanjeev Balyan. There has been angry and divisive talk, too, from politicians of all hues, academics, writers, and pundits.
It fell to Finance Minister Arun Jaitley to decry the ‘policy diversions’ and poor image of India that incidents like the Dadri lynching create. It would help if we joined the dots. Akhlaq was killed a day after Modi spoke about a transformed Digital India to a rapturous Silicon Valley crowd on his US trip, and a day before the Reserve Bank of India made a big cut in interest rates in a bid to add some rocket fuel to our economy. Dadri is part of Dadri-Noida-Ghaziabad chunk in the ambitious Delhi-Mumbai Industrial Corridor, which aims to create 100 million new jobs, dovetailing with the railways’ equally ambitious Dedicated Freight Corridor and the birth of several new smart cities. It’s almost as if dark forces are trying to throw black ink over the happy, colorful, emerging picture of inclusive, sustainable growth.
Jaitley, who is in Lima this week for the annual World Bank-IMF meetings along with RBI Governor Raghuram Rajan, has said “the political agenda of India is changing. Economy is increasingly occupying the centre-stage of politics.”
But in a talk at Columbia University on Monday, Jaitley spent quite a bit of time being political. Seventeen months after the BJP won power, the finance minister still found it necessary to talk about the ‘wasted decade. squandered opportunities. . .mistakes of the past’ of Congress rule.
Modi’s government is striving mightily, and when Rajan cut interest rates by a greater-than-expected 50 basis points last week, he spoke of how the central bank and the government were trying to turn around the economy “through hard work, through pragmatic policies that are not ideological but based on what works.” The economy’s recovery has not been robust, Rajan warned. By cutting interest rates four times so far in 2015, he has now thrown the development ball squarely into Modi and Jaitley’s court. Note that both the RBI and the Asian Development Bank have scaled back their forecasts of India’s GDP growth this fiscal year to 7.4 per cent, which is a notch below last year’s 7.5, while the IMF predicts India’s GDP will grow 7.3 per cent.
What are the danger signs? Despite the weaker rupee and cheaper oil, exports have languished because of the global slump. Cheaper imports have also led to lower capacity utilization at home, and businesses are just not investing or expanding. More alarmingly, with interest rates at historic lows overseas, Indian companies went on a borrowing binge and are over-leveraged. At end-June, Indian firms’ external commercial borrowings had ballooned to $185.4 billion, a whopping38.4 percent of our total foreign debt of $482.9 billion. And India is not alone in this vulnerability, as the IMF pointed out in its Global Financial Stability report last week. If interest rates should start rising in the West, as they will when the U. S. Federal Reserve uncorks that bottle soon, there will be mayhem in emerging-economy markets.
Indian business is in the doldrums despite Modi’s determination to make rules easier, simplify taxation, and push the Make in India mission. CRISIL Research said on Wednesday that corporate revenues are expected to grow by a paltry 1.6 per cent in the three months to September, the fifth consecutive quarter of single-digit growth. EBITDA (profits) growth is forecast at only 2 per cent. On Tuesday, another CRISIL report said 7,500 km of build-operate-transfer highway projects are at risk. Nearly a third of this under construction is in danger of not being completed because of cost over-runs. This means Modi’s government will have to launch a massive rescue of this key infrastructure sector, while also struggling to save some state-owned banks that could keel over under the weight of bad loans.
Jaitley told his Columbia audience that Indian policymakers have had to get used to the ‘newest normal’, to live in turbulence and volatility If only that were true of just the economy, and not of religion and politics.
