Worrisome aspects of Modi Sarkar's functioning

Why visit foreign countries asking multinationals to “Make in India”, and then subject them to the sort of treatment meted out to Nestle? You are gaining a reputation for talking big about “minimum government, maximum governance” and then doing the opposite. You refuse to rein in over-hasty, arbitrary food inspectors and tax officials, apparently for fear of being called pro-multinational.

Foreign companies now want to buy insurance against arbitrary penalties for which your tax authorities are becoming famous. But Bloomberg reports that all top global insurance companies that offer such insurance in other countries have refused to do so in India, saying Indian tax behavior is too erratic and unpredictable.

Your new spectrum sharing and trading policy is replete with red tape. Why? Are you terrified that a liberal policy will be portrayed by opponents as another 2G scam? Have you no self-confidence or conviction?

For the full text of the open letter to NaMo by Swaminathan Aiyar in the Sunday ToI, click here.

Exactly as the author has exhorted, NaMo needs to focus on purposive governance to establish himself as a strong leader worthy of re-election in 2019, rather than be distracted by Bihar elections. The question is would he heed the exhortation?

In August 2013, Credit Suisse (CS), a global investor, reckoned that 10 large Indian conglomerates had borrowed a staggering Rs 6.4 lakh crore. This was nearly three times India’s defence budget at the time.

Each of these companies didn’t even generate enough cash to pay interest on what they’d borrowed. Nevertheless, CS hoped that by 2014-15, many of these companies, heavily invested in the power sector, would generate 15,000MW of electricity and pay back banks.

Well, tough love. Apart from Reliance ADA’s Sasan and a project by Tata Power, everything is stalled. Technically, groups like Lanco, GVK and GMR are bust: in the US, they’d have to apply for Chapter 11 protection, their managements ousted and assets sold off cheap.

Not so here, where state-owned banks continue to ‘restructure’ loans: “Oh, you’ve lost Rs 100 crore of our money? Here, take another Rs 200 crore.” And so it goes. Banks are riddled by graft, kickbacks are routine, and no promoter is ever broke. Meanwhile, their companies are bust and shareholders bereft of their chaddi-banians.

For the full text of the column by Abheek Barman in the Sunday ToI, click here.

Last week, talking to a senior manager of a nationalised bank (who had just retired), who I have been banking with from long, he told me about how many things have been going wrong with his bank in recent times. He specifically mentioned the case of a senior lady manager, with a brilliant track record, being asked for a bribe of a few crores to be inducted onto the bank board. Aparently, she was outraged, and quit the bank, to be readily absorbed by a private bank at a senior level.

Now, though all of it is heresay as far as I am concerned, there's no reason for me not to to believe the senior manager, either. And, going by the reports of the NPA's that our nationalised banks have been accumulating, the senior manager's talk begins to gain currency.

I'll still say that Lanco, GVK and GMR are fairly competent business houses. The problem they are facing apparently arose out of their tendency to go overboard with their projects, which is the impression one gets seeing the new New Delhi or Mumbai airport terminals, as compared to the largely functional ambience of the Bengaluru airport, which was originally built by the Siemens/ L&T led consortium. Apparently, the nationalised banks backing them were indulgent in such pursuits, whereas private banks in their place would have been a lot more prudent.

The moral of the story very simply is for the government to disinvest to the level of retaining just 26% equity holding, which is good enough to ensure that their conformity to overall policy directives. There have been some moves by the government of recent along these lines, more specifically in the matter of induction of talent at board level from private sector. But, they all seem to be too slow and too little.

Similar is the sense one gets from a reading of the column by Sadanand Dhume in today's ToI (accessible here), some excerpts from which are reproduced below:

Thus far, Modi’s approach to the economy has been timid and lacking in any obvious conviction. His over-reliance on the bureaucracy suggests a prime minister who has yet to outgrow a chief ministerial style of administration. His failure to privatise even perennially loss-making public sector companies such as Air India betrays a strange comfort with the status quo.

Syedbhai - for the nth time, can I request you not to attribute the talk of "privatization as the panacea" to me, please? I too have a few fears about privatisation, and I have included them too in my listing accessible here. Whatever, as I have stated in the post itself, I believe that all of them are beginning to get addressed, or that they will get addressed, sooner than later. Besides, my fears over continuation of government as a producer of goods and provider of services is far greater.
 
Did we ever wonder why corporate India won't lobby for progressive regimes like GST, AADHAR?

Wherever did you get this impression? Last time when you brought up this too, I had pointed out to you that you were mistaken. But, you keep repeating the same thing, without any substantiation. A few days back, I had in fact come upon a statement by a known industry representative, lamenting the lack of resolve on the part of the government in moving the GST bill fast enough. Had I known that you were still harbouring the misconception, I'd have sent the link to the report to you. Google and check them out for yourselves if you so wish.

Latest was Pm's nudging SBI to help a industry house. - - Kingfisher owes about Rs 7000 Crorers

The fanciful ways of Lanco, GVK and GMR, as also KingFisher, were all funded by the PSU banks. And, that's also why the correction is not happening yet. And, all of these are traditional businessmen who believe in 'exploiting opportunities', unmindful of collateral damages their pursuits may cause. That's where correction is required. But, the correction will not happen through nationalisation, or retaining the status quo, because the PSU's were (and are) themselves bigger defaulters on these scores even.

The loss to the tax payer on account of KingFisher is a one-time Rs 7,000 cr. But, on account of Air-India (not a day passes without it being in the news for some wrong reason or the other), it is some Rs 10,000 cr per annum, in perpetuity. Also, if KingFisher had been funded by private banks, and it had closed down, the losses would have been to the account of the shareholders, and not the tax payer. In the first place, between the shareholders and private bankers, they wouldn't have allowed it to sink to such depths, even if it sank for whatever reasons.

Besides all of these, it should interest you to note that when the private players came into the picture in the distribution of power in Delhi, the Supreme court reversed its earlier order with a view to bring about financial discipline in the sector (check here). When DESU was in the picture earlier, the court obviously thought it was futile.

Moral of the story very plain is for the government to concentrate on its role as the facilitator, regulator, and controller (where essential), rather than continuing as a player. I am surprised I am having to go on repeating all of these time after time.

By no way does this mean that the BJP is going to lose every election in the months ahead. But it does emphasise the fact that the old winning formula of 2014 is now on the wane, if not over. And the party, notwithstanding its old guard rebels, would be better served focusing on making Modi, the PM, more acceptable and successful than chase grandiose political visions of resurrecting a revisionist model of nationhood.

For the full text of the column by Mr Pranab Dhal Samanta, in the Economic Times, click here.

A well written column, indeed. Comparing with Congress mis-rule is long past the sell-by date.

It should be obvious to most that this government, contrary to the myth supporters had created, does not believe in disinvestment of state-owned companies. It has no intent of meeting even the disinvestment targets it had set itself for fiscal reasons. Quite the contrary, it seems to believe that with the right bureaucratic intervention, public-sector companies can be turned around. Certainly, some companies can. But it would take a peculiar obtuseness to argue that in some areas, disinvestment cannot be a good thing. The opportunity cost in terms of finances and human capital of the state running things that are unnecessary for it to run are still huge. Yet there remains an immense 1970s-style commitment to the public sector in areas of production.

On the other hand, the two areas where you would expect the public to take a lead role, health and education, are on a galloping privatisation trajectory. Much of this is due to state failure. But a lot of the failure was almost deliberately induced to create opportunities for politically connected education entrepreneurs. Just the list of politicians who run educational institutions will point to this fact. But whatever the political-economy story, we still have a curiously schizophrenic view of the private sector’s role in this area. On the one hand, we want it to bear the load of state failure: It should perform the public sector’s role.

- - - So all the things that a public system should ideally produce — law and order, basic social rights like health and education — are increasingly privatised but with ad hominem and corrupt regulation. It is a good thing that this government ideologically does not believe in defeatism about the state. But it has done little to restore clarity on the roles of the state and the market, the public and the private.

For the full text of the must read column (emphasis added by me) by the redoubtable Pratap Bhanu Mehta in the New Indian Express, click here.

If this is what we are seeing after one and a half years of policy charting by the likes of Arvind Panagaria, Arvind Subramaniam, etc, it is not just disappointing, but, I would even say, totally tragic. If the Modi sarkar is not prepared to take their advice, it'd be best they quit, rather than ruin their reputations.

The following excerpts from a ToI editorial piece (full text - emphasis added by me -  accessible here)

NDA’s approach is characterised by energy but its instinct remains similar to that of its UPA predecessors. To illustrate, there is a distrust of market mechanisms which shows up in the form of price controls and interference in private contracts. To this, add the tendency to have blind faith in public sector companies which forces government to craft policy in a way that prioritises its companies rather than the economy as a whole. This shows up in the form of endless rounds of bank recapitalisations and airline bailouts when the nature of ownership is the root cause of the problem.

as also the following excerpts from a column by Sri P B Mehta in the New Indian Express (full text - emphasis added by me - accessible here)

Contradictions in the government are still muddying its identity. This is a government where swagger often overshadows truth. But it is difficult not to see the contradictions. On institutions, Modi ran on the slogan of minimum government; but the reigning ideology is that he is a big believer in government.

say it all.

Not many people seem to be able to read Modi-ji's mind. Well, we live on hope.

Things have never looked better for the ruling combine. The primary political opposition has been scattered, leaving no credible challenger on the national stage. The economy has never been better since 2011 or so, with a recovery clearly on the cards. It may be a weak recovery, but the combination of improved corporate results (if we set aside the banks, that is) and the prospect of a good monsoon have sent the stock market soaring — though still not to the levels that prevailed a year ago. If the government wanted to seize the moment and push for the changes that would deliver faster growth, now would be a better time than any. The economy can bear the shocks of change, and there is enough political space for the government to take calculated risks. That is why it is so disappointing to read the comments by the prime minister — who seems to have turned his face away from the business of introducing serious reform.

- - - On state-owned companies too, Mr Modi has signalled that there will be no real change. One must ask why, when so many government companies have no financial, economic or other rationale. The example that stares everyone in the face is Air India, which if it were in the private sector would long ago have met the fate of Kingfisher Airlines. Ditto with the government-owned hotel chain. It is distressing to get such status quo views from a prime minister who is in the rare position of being able to lead change, but who argues instead that the experts have failed to tell him what ‘big bang’ reforms he should introduce.

- - - It has been said that India will do the right thing only after it has tried all the alternatives — and only when a crisis pushes the country to the realisation that there are no options. With the government expecting good times to return, the signals coming through are of a new complacency. In which case…Oh, for a crisis!

For the full text (emphasis added by me) of the column by Mr T N Ninan, in the Business Standard, click here.

On the one hand, you have economists/ columnists like T N Ninan, Swaminathan Aiyer, Surjit Bhalla, Sadanand Dhume, Shekhar Gupta, Ashok Malik etc, repeatedly advocating the liberalist route that the Vajpayee government had quite successfully followed to achieve a real "India Shining" (even if it lost the elections, on account of other factors), and on the other, you also have the likes of Arvind Panagariya, Arvind Subramanian, etc, within the government itself, and whose line of thinking was also supposed to be on similar lines. For all of that, when the PM continues with Nehruvian Socialism, as graphically brought out by Shekhar Gupta (read my post immediately above), and then goes on to say "experts have failed to tell him what ‘big bang’ reforms he should introduce", it's indeed puzzling. All in all, the PM appears to be squandering of an opportunity to usher in real "acchae din" - truly disappointing.

The first repercussions of the impending departure of Raghuram Rajan from the Reserve Bank of India could now be visible -- and it looks like those who argued the independence of India’s central bank was under threat may have been right.

- - - The fact that the government has chosen to ignore the obvious means of recapitalizing banks is also revealing. The state-owned banking sector shouldn't be bailed out using RBI funds, of course -- but not by using tax money either. Instead, it should be guided towards privatization, and funds for recapitalizing the best banks should be raised from the markets. But movement on this is slow. Modi himself doesn’t seem too sympathetic to privatization.

India’s Prime Minister came into office promising “maximum governance, minimum government.” That’s what both the RBI and the banking sector need, not renewed state control.

For the full text (emphasis added by me) of the column by Mihir Sharma, in Bloomberg View, click here.

Says it all - doesn't give a comfortable feeling.

“Reform, perform and transform” was an inspiring slogan delivered from the ramparts of Red Fort in the course of Prime Minister Narendra Modi’s Independence Day speech. However, that expectation was belied in a key area of the very same speech, when the PM spoke up for a few ailing public sector units that recorded improvements in their financial performance in the recent past. Modi’s observations on Air India, Shipping Corporation and BSNL – three companies mentioned in his speech – are unconvincing.

- - - It is not as if these companies cannot be turned around. But under government ownership, managements are unlikely to have the freedom to do so. Therefore, we have a double whammy of public companies’ value declining and government’s continued investment in them depriving it of resources in other areas. The only way out is to revive the strategic disinvestment of the Vajpayee government. Hopefully, Modi will revisit his PSU strategy. He has shown boldness in other areas, he should abandon status quo on PSUs.

For the full text of the editorial in the ToI, click here.

Can't understand this at all.

Public sector banks have seen nearly Rs 80,000 crore increase in gross non-performing assets (NPAs) in the three months ended September 2016. As on September 30, gross NPAs of public sector banks rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June end, an increase of Rs 79,977 crore on quarter-on-quarter basis.

For the full text of the report in the ToI, click here.

The question that arises is "Is the government going to be using the windfall gains out of the demonetisation exercise to recapitalise the PSU banks?"

Now, the noted economist, Ruchir Sharma, had, in his column in the ToI (for the full text, click here), a few days back, commented as "If India wanted to do something radical it should have taken on privatisation of a banking system in which government ownership is higher than in any other democratic nation".

As such, for all the recapitalisation of the PSU banks that the government may undertake, without the checks and balances that government divestment (I am deliberately avoiding the P-word, because of this) can bring about, what guarantee is there that, a few years down the line, another Mallya doesn't come along and scoots away with all of the money?

Demonetisation has caused immense pain, particularly to the aam aadmi, from which many may not recover even. On top of it all, if the gains are going to be squandered away by the lax ways of the PSU banks, then not only would it all not have been worth the effort, but the it would be seen as most unpardonable. Yesterday's tweet by Jayant Sinha-ji that "Air-India is on an expansion mode" is an indicator that the government still believes in the PSU's, for all of the noises to the contrary coming from the Niti Ayog (check here). All in all, it's total confusion all around.

It is true that demonetisation is a big bang — in the sense that it is accompanied by a terrific amount of noise, and nobody is sure for a while exactly what the explosion has destroyed. It is false, however, that demonetisation is any kind of transformational reform. In fact, given that it is statist in orientation, reduces choices for market participants, depends enormously on inefficient government machinery, and increases the costs of doing business for the foreseeable future, it is on pretty much every count the opposite of “reform”.

- - -  In one stroke, demonetisation has rendered that argument specious. Narendra Modi has shown that if he has chosen so far to avoid transformational economic reform, it is not because he is worried about the disruption it would cause or the political opposition it would create — no, it is because he simply is not interested in doing it. Who now can claim that privatisation of big public-sector monopolies or administrative reform or labour law reform was off the table because Mr Modi was forced towards incrementalism? If you decide to plunge the world’s third-largest economy into a liquidity crisis overnight, then you cannot be described as being too cautious for shock therapy.

And as for what it reveals about the policy-making in this government — well, the less said, the better. Demonetisation cannot be defended as a good idea, poorly implemented. The first rule of governing India is that you only make the policies you can implement. If we ignore implementation, then no doubt the Licence Raj was a brilliant idea, too. No, demonetisation has to be either a good idea or a bad idea to begin with, with a clear-eyed estimation of the implementation difficulties being an integral part of the decision-making process.

And that is where the government’s weaknesses have been thrown into sharp relief. Not only is this the extreme example of a general problem — that this government is absurdly top-heavy, with all major initiatives coming from the prime minister’s office. But it is also emblematic of all the government’s other policy-making weaknesses: A tendency to think in terms of headlines, not of effects; a pernicious distrust of expertise; and a tendency towards statism.

- - - I do not deny that demonetisation is currently politically popular. It may remain so — only in long-suffering India, perhaps, will already trodden-on people accept additional inconvenience if assured that everyone else is suffering too. Given that, immediate political popularity is not how this decision should be judged. Its implementation shows that, far from being an efficient manager, Mr Modi fails comprehensively when it comes to thinking at scale. Its nature proves that, far from being a reformer constrained by politics, Mr Modi is simply a statist who thinks only in terms of politics. And its conception demonstrates that this government is simply too amateurish in terms of economic policy-making to properly address India’s deep, deep problems. Politically popular or not, the reputation of this government and its leaders should not survive this disastrous experiment.

To read the full text (emphasis added by me) of this brilliant column by Mihir S Sharma, in the Business Standard, click here.

I can't but agree with all of what the author has stated. It's such a pity. The country had laid so much hope in NaMo and elected him as the PM with such majority, quite like Delhi citizenry reposing their faith in Arvind Kejriwal (on him, check out here) and electing him as the CM, again with vast majority. Sadly, both now seem to be letting down their electorate, rather the country itself.

The problem apparently is that we are all looking for messiah's, when, in fact, there can't be any.

Shobha De in her column in the ToI (for the full text, click here) has written "This move is going to cost. Big time. Cost whom? Well — just one man. Narendra Modi. Not the BJP? Nope. Him! PM Modi. Why? Simple, my dear Bharatwaasis — this demonetisation move is seen as his brainchild. A solo act. A solitary decision taken without consulting colleagues. Or thinking about consequences. From all accounts, his cabinet buddies are far from amused. In fact, some are said to be livid".

May be time to dump wannabe messiah's and look for genuine leaders.

If banks are the heart of an economy, India has a hole in the heart. Up to 20% of public sector bank loans are impaired. Chief economic advisor Arvind Subramanian says India is being held back by a “twin balance sheet problem”— dodgy balance sheets of banks as well as its borrowers, burdened with huge, unrepayable debts.

This can be resolved only by the banks taking a big “haircut’ — writing off a big chunk of unrepayable loans. But this will spur accusations of cronyism, which Narendra Modi seeks to avoid at any cost.

Subramanian says only political courage can cut through the Gordian knot. He suggests creating a “bad bank” to take over the impaired loans and dispose of them at whatever discount the market requires. Finance minister Jaitley is very wary of financing a “bad bank”, and the private sector won’t. The impasse continues.

Two-third of impaired loans relate to 24 big companies, mainly in infrastructure and steel. India needs most of them for its proposed infrastructure push, but they will remain hobbled unless they get a haircut.

For the full text (emphasis added by me) of the column by the redoubtable Swaminathan Aiyar, in the SToI, click here.

Now, this precarious state of the Public Sector banks was quite well known even as the NaMo government took charge over three years back. In fact, the matter was an election issue too, using which BJP got the better of the UPA govt. Dr Raghuran Rajan, as the RBI Governor, very clearly pointed to the need to correct the situation, and, given his overall standing, the government could very easily have got away "bailing out" the banks, and even claiming credit for it. But, unfortunately, the opportunity was squandered, and instead we saw the demonetisation experiment being played out, the outcomes of which appear more hurtful than helpful, to the economy in general, and the aam aadmi, in particular.

And, as if all of that was not enough, the government now appears headed to make things worse, going by a reading of the following excerpts from a column by Shankkar Aiyar, in the New Indian Express (for the full text, click here):

The national carrier (Air India) is yet again on the “rescue me” queue. This time—after sinking public monies and staking sovereign guarantees—the government is looking at an “innovative” bailout. The innovation: conversion of Rs 28,000 crore, out of the Rs 46,570 crore the airline owes 31 institutions, into equity, induct professionals with proven skills and  listing of the airline.

Simplicity can be seductive. Effectively, lenders are expected to forsake interest earnings for a slice of ownership and the promise of dividend—ownership in a flailing enterprise ranked third worst-performing in 2016, and returns from an airline that has reported net losses of Rs 6,279 crore, Rs 5,859 crore and Rs 3,836 crore in the past three years.

Who takes the hit? The price will be borne by the depositors and shareholders of the 31 banks, the Life Insurance Corporation and the Employees Provident Fund Organisation. Remember that the banks are already reeling under gross NPAs of around Rs 7 trillion (roughly over $100 billion), and public sector banks desperately need capital infusion of around Rs 1.10 lakh crore. Embedded in the idea is a moral hazard—would this munificence be a precedent for other public sector enterprises (PSEs) that are ailing?

Forget talk of reforms, what we are seeing is "statism" worse than of the Marxist kind.