Are We Over Hyping up Make in India?

Business Economics & Services Team (BEST)



                                                Are We Over Hyping up  Make in India?


There is a worldly wisdom: When something is played up over and again, up your ante to know what is there inside. There are people who suspect high decibel advertisement campaigns, steep discounts, over pitched demagogues. I do not think that I am not  the lone person who airs skepticism on these much touted projects, which are laced with a lot of promises, deliverable and marketed as game-changing strategies. Many have voiced concerns about the concept of Make in India in public forums.

The first to air a word of caution was the RBI governor, who maintained that Make in India should be more focused on the domestic market. Understandably, Indian products should become competitive within before it makes forays into the international market. How is this  possible? Economists give a benchmark for measuring the optimal growth of  the manufacturing sector in any economy. In India's case, the ideal share of manufacturing to country's GDP should be 40% or so. During the best of times, India had clocked only 25%. But slowly, the share had declined to 15% or so. The last UPA government had formulated a policy to up the share of the manufacturing to 25%. But it could not make much headway on account of the several scams that had erupted one after the other leading to a perceived policy paralysis.

If one tries to go beyond the veil of the new Make in India policy, the quintessence is the same, a new wine in the old bottle. it also aims to up the share of manufacturing to GDP to 25% in the conceivable future, create a modern technology focused manufacturing sector that  is globally competitive, creating an enabling infrastructure sector and importantly an export surplus. It has set up various enabling institutions to achieve that objective including manufacturing competitive council and skill development council. Bereft of rhetoric, the new dispensation has engaged in these tasks. If the new government wants to be different from the previous one, it should deliver in time and with least resources. Then only it can take credit for whatever it proposes to do.
 Can we create enough job in the manufacturing sector to absorb the multitudes of unemployed people? Empirical studies prove that intake people in the manufacturing sector will be less on account of the cap[ital intensity of the segment. Most of the state-of-the-art technologies need less number of people to operate them. Even with a manufacturing growth of 15% over a period of time, the number of people to be employed in the sector will be far less on account of the mechanization of many of its operations. therefore, no vistas have to be opened up for absorbing people in other sectors like construction, urban development etc.

Then there is the ecological  issue. Industry is concerned about slow clearance of the projects from the environment angle. The government has committed to look into that seriously. But in lax in stringent environmental norms can escalate the social cost to the detriment of everyone.               

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Will Mega Events Help Bring Investment ?

Business Economics & Services Team (BEST)


                                      Will  Mega Events  Help Bring Investment ?
In India big events are happening at regular intervals  presumably with twin objectives. One, to spread the India Story and two, to bring in the necessary investment. One is already over in Ahmadabad- Pravsi  Bharat Divas-mainly focused on People of Indian Origin (PIO), which going by the number of people attended was a big hit in terms of the number of people attended and the solidarity pledged by the participants to be involved in India's growth story in a  more meaningful manner. It remains to be seen what will be the likely fallout of the mega event in terms of accelerating the flow of investments into the country.

The second event-Vibrant India-is underway in Ahmadabad. It is not a new event but was rechristened from Vibrant Gujarat. This time around the event has captured the imagination of the foreign investors mainly on account of the fact that the event was crafted by the prime Minister Narendra Modi, when he was the chief minister of the state. This event had a snowball effect. Several states have tried to copy the event and now you have half a dozen similar events held by states like Madhya Pradesh, Uttar Pradesh, Kerala, Bihar etc. and the latest to join the band wag is West Bengal.
Business Associations and media houses are not falling behind. Economic Times, the largest financial daily in the country is organizing the Times Global Summit (GBS) shortly in New Delhi, which is being sold as an event where large number of foreign investors and Indian industry leaders are likely to participate and give their perception about India and the investment opportunities.

Why this herd instinct in organizing mega event? We have spoken to a few people about the usefulness of these events. There were positive and negative feed backs. A good number of them are of the opinion that such exorcizes will provide a platform for discussing broader macro issues that can can be resolved through policy decisions. The government can spell out clearly what they intend to do in creating a favorable environment for investment and they can hear the views of the investors as to what more has to be done in addressing their woes.
But there is a fairly large section of people who believe that such assemblage of people will not serve any positive results since many issues that affect the investors at the grassroots cannot be discussed at these forums. Investors come to these meets mainly to rub shoulders with the policy makers and fellow industrialists. Investment decisions are taken after a close study of many factors and no decision is taken merely on assurances.
Many confirm in private that such events will not serve any purpose, since every issue is discussed in such forums and the seriousness and intensity of discussions are merely superficial and there is positive of time to get   into the brass tacks. Some of the participants, whom we have contacted through  telephones say that same issues get repeated and many of the participating corporations refuse to divulge theoir issues in open forums. It would have been ideal to have small groups for every segment of industry to thrash out their problems, rather than airing them in such open  meetings.     

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FIIs Flow Declines-Alternatives For Indian Markets

Business Economics & Services Team (BEST)
               

FIIs Flow Declines-Alternatives For Indian Markets

 With the possibility of interest rates firming up in the US, the FII inflows into the country is likely to hit. This may sound not so good for the buoyant capital market in the country, which has been hitting  new highs these days. Forewarning of that trend is noticeable these days. There is a downward movement in the FII flows into the country. For instance, overseas investors pumped in a little over Rs 2100 crore in the equity markets in December 2014, the lowest in the last 10 months.

Analysts are not taking this trend  as serious since they believe that drop in net FII exposure in the equity market is on account of profit booking. They argue that the market will move up once the profit booking is completed in the next few days..
A look at the investment flows into the markets  is important. FIIs have made an investment Rs 98150 crore in equities and their invest in the debt market was Rs 1.6 lakh taking the total investment to Rs 2.58 akh crore. The net investment in the debt market for the same period was Rs 11,856 crore, making it higher than that of investment in the equity market.
Whether it is good or bad, stock market has emerged as an important barometer for measuring the buoyancy of the economy. Assuming that there will be marked drop in the FIIs exposure in the market in  the near future, some steps should be taken to sustain the trend.Before the advent of the FIIs into the country, capital market was sustained by retail investors and institutions. LIC, IDBI, IFCI etc had large exposure in the market. This trend has to come back to shore up the capital market.
The other important thing is to shore up the confidence of retial investors, who are shying away from the market because of the stock market crashes, which have been happening at regular intervals. SEBI, the watch dog of the capital market has been taking strict measures to curb malpractices in the market such as insider trading. But retail investors are not enthused in the market because of the legacy od bad expereinces that they had. It is time that we start a slow process of disintermediation between Indian markets and the FIIs. That does not mean that FIIs investments are not welcome. What it means that we have to have an alternate support system to sustain  the market in occasions when FII inflows slow down.  .

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Fight Against NPAs

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Business Economics & Services Team (BEST)

                      Fight Against NPAs


Now the focus has turned on curbing non-performing assets (NPAs)of the public sector banks. Going by the magnitude of NPA- which is currently estimated at Rs 2.43 lakh croe, of  which PSBs account for 35.9 %-the call  has come very late. The nation's assets have sunk into such non productive assets that a resource scarce country cannot afford. But that is a legacy that India has inherited on account of the unholy alliance amng bankers, industry and politicians. Also, it is a moot point what steps  the government is taking for curbing the NPAs in the non PSB sector, which is more than 60%.
It is the not the first time, the alarm bells for NPAs have been pressed.That has been with us for long. Occasionally, the government comes  out with bold steps to curb the NPAs. But mostly that schemes remain in papers evading any serious follow-up  measures.  There are some historical reasons for accumulation of NPAs over a period of time. First and foremost is the absence of  a foolproof system for monitoring sickness. Loans were disbursed to companies without undertaking any proper viablity study of the project. There are cases when people undertake projects on gut feeling that they  can succeed without heading to business norms.
Secondly, the nexus between the lenders and borrowers, which led to sanctioning of loans in an arbitrary manner, mostly driven by the relationships rather than sound prudential norms. Even before reform period such aberrations were rampant. For instance, debt equity ratio facilitated conversion of  lenders money taken as debt were indiscreetly got converted into equities. Preponderance of that culture had taken off the onus cast on the borrowers to repay the money and those who had repaid had often asked for easy rollover of the loan repayment time.   
There is a third category of people   who had indulged in willful default of loans. They skimmed the company of all assets and even sold machinery to make them sick. Once bled the company, they filed for getting the sickness status for the enterprise, which enabled them many advantages, especially moratorium  for repaying  the loan. Some companies even manged to get finance for restructuring companies and also squandered off that funds or diverted to some other activities.   
The fourth reason for mounting of NPAs is of a recent phenomenon , when banks were instructed by the government to give soft loans to corporations to help them fight the slowdown blues. No proper montioring has been done while pump priming resources to these companies. Not many companies have properly put to use the finances.

Now the finance minister and the RBI governor have given a clarion call to the general public to save more and channelize such investments for productive purposes.  The prime Minister also exhorted the general public to lessen their savings in gold and increse on investment portfolios. But that will fall on deaf ear if the investing public is not assured proper return on investment. Yet, it is a good beginning an uncompromising war on NPAs. 

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Hasty Ordinances

Business Economics & Services Team

                                                      Hasty Ordinances

A heated debate is on about the  hastiness of ordinances issued by the government to give effect to the important bills stalled in Parliament on account of the pandemonium orchestrated by the opposition parties. While there is near consensus on the insurance ordinance, the opinion seems to be divided on the one on land acquisition.

It is more due to the likely misuse of the provisions of the legislation, which can go against the interest of the farmers and other vulnerable sections of the society, who can be victims of land acquisition. The history is a testimony to that. In 1894, the British enacted the land acquisition bill as a tool to expand their colonial ambitions by taking over chunks of land masses from natives mostly on flimsy  ground, with almost nil or grossly inadequate compensation.  The colonial hangover continued even after independence. That served the interests of the ruling masters and their cohorts.
Undoubtedly, the step taken by the lat UPA government was more dictated by vote bank politics. But  it had its own advantages. It was a break from the past trail of exploitative governance to a more equitable dispensation by providing the people who are affected by acquisition of land more compensation  and also making the very process of acquisition on flimsy ground more difficult. The new act has not even worked for one year. And yet,  the government has decided to amend the act on the ground that the legislation has proved to be a stumbling ground for land take over  for productive purposes.
But the fact is that the government has yielded to the pressure exerted by vested interests, who stand to gain from the new dispensation. It is a known fact that many state governments have freely or at a throwaway prices, given land  for many industries. The land acquired by corporations in invest melas conducted at regular intervals by the state governments is a case in point. It is instructive to have a study undertaken to find out how such huge parcels of land have been put to proper use, how many such land has been sold  and how much of land has been put to other uses.
It is also instructive to evolve a new compensation matrix, which not only calls upon the acquirer to pay  adequate compensation but also to ensure that release of  compensation is staggered in such a way that the affected persons and their generations to come get the compensation in perpetuity. The best way is to make them stakeholders in the project. There are some reservations voiced against such schemes because in future there will be spate of litigation among the heirs. This can be resolved by naming who would be beneficiaries in the future and in what proposition. Also, such compensations should be indexed against inflation.
There is a lot of merit in evolving such a compensation matrix. Past experience indicates that one time compensation leads to conspicuous consumption and the beneficiaries blow up the compensation within no time, leaving  the next generation in penury.
Therefore, what  important  is to have a wider debate on the pros and cons of the desired amendment of the bill and  passing it through an informed debate, even if it takes time. That is what democracy is.              . 

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Is This a War of Attrition Between FM and RBI Governor?

Business Economics & Services Team


                                Is This a War of Attrition Between FM and RBI Governor?

 A day after the union finance minister Arun Jaitley reported to have told a gathering of industrialists and bureaucrats at a meeting to chart out the future course of the grand Make in India program that the higher interest rate was a stumbling block to pep up the manufacturing sector, he retracted  from that in his twitter. The sum and substance of his tweet was that the media had read too much into his generic comment that a lower interest rate was necessary to kick start the economy. His explanation can mean that at this present juncture, what is generally good for all economies, need  not necessary  be good for India.

Is he trying hard to distance from his statement? Jaitley may not be an economist in strict sense since he comes from a profession of lawyering. His reputation as a lawyer is well known and widely recognized. Also, as an astute politician, he has made his mark so much so that he is the most powerful and incisive spokesperson in the NDA today. Also, the journalists  present at the high profile meeting to cover are not the amateurs, cub reporters or stringers. They are hard core financial journalists, who have been covering  Jaitley and the finance ministry since many of the headline stories come out from the finance ministry. Can they commit an error of this magnitude of misreading the finance minister?
This is not the first time that the erudite finance minister had made such a statement. More than a month ago before the review of the monetary policy announced on 2nd December 2014 also made such a statement. Is Mr Jaitley blowing hot and cold? Possible because he has to gravitate towards the powerful industry lobby, who has been clamoring for a rate cut, as if that is the panacea for  all economic ills in the country. A shrewd lawyer and politician of Jaitley's reputation can easily disrob the veil of the rationale put forward by industry for rate cut.
As the drama unfolds, one should give the due credit to the present RBI Governor for withstanding the pressure from the government. Admittedly, he has a few advantages. One, he does not have a bully finance minister to handle. That way, there can be traces of arrogance in the present incumbent, he is far more  refined and respect the delicate domains of fiscal and monetary policy. While fiscal calibrations are his, he tends to accept the authority of the RBI governor over the monetary policy. That is a good augury.

The second advantage that the RBI Governor  enjoying is his own background. His impeccable background and academic elan have come handy in dealing with the pressure exerted by the finance ministry. For long, barring a few exceptions like Dr Manmohan Singh and Dr Bimal Jalan, we had only senor bureaucrats as the RBI governors. The bureaucracy has been taught to call Sir to people who are one day senior to them. That does not take away the circumspect stands taken by some earlier governors like Dr Reddy and Dr Subba Rao, who did not yield to the bullying tactics and stood their ground.

The third advantage is connected with the second. Being a part of the officialdom, both his predecessors-Dr Reddy and Dr Rao were hamstrung what they  have been taught at Mussorie- that a bureaucrat should work in the background and the public glare should be on the elected  representatives in a parliamentary system of government. That way they shied away from the media nor they have tried obtusely to create direct contacts with the media. They had met media when it was  important to meet them to announce the RBI stands and policies. In these days, one can easily make out that the RBI governor is getting wider exposure ever enjoyed by any of his predecessors. I suspect even more than the finance minister. It may be incidental or the governor would have made this as a policy to hob know with the media. If he has done so there is nothing wrong in that.

 I have a feeling that there is a well laid out scheme by the RBI to counter some of the opinions expressed by industry and industry lobby organizations. Along with the clamoring for rate cuts, we get to know that the industry off take of credit has gone up somewhat appreciably negating the claim that higher rate is affecting credit off take. Is it a tit for tat? if it so, there is nothing wrong in that.                     

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Why I will Support Arvind Kejriwal in the Next Delhi Elections?

                             Why I will Support Arvind Kejriwal in the Next Delhi Elections?

I am giving below 10 reasons why I will support Arvind Kejariwal's Aaam Admi Party in the coming elections  in Delhi.
1. I believe Congress and Bhartiya Janata Party (BJP) are both sides of a coin and they are firmly footed in the vote bank politics. Whereas, AAP, though lacks experience in governance, is willing to experiment, without much looking into the outcome. Them abdicating the power in Delhi last time, is a political experiment. Opinions may vary whether that had misfired on them. In any experiment, there can be good and bad results and one has to take them in the right stride.
2. All major political parties have developed vested interest in continuing with the system   and  they have to carry on with them the stakeholders since the money for fighting elections are largely coming from them. Every contribution to them has a string attached to it. They cannot wriggle out of it, however hard they might try. Whereas, AAP being a recent political formation can innovate the funding patterns. They have been organizing dinners, get-together, membership drives, contributions from like -minded people etc., which add up to their kitty. If there is any minor aberrations, I am willing to tolerate them.
3. Mainline parties are surviving on media patronage to a large extent. Media is owned by industrialists and independence in reporting is a long forgone doctrine in India. Of course, media change the stand depending on which side of the toast is buttered.  We can see it every day in newspaper columns how they hawk the their own agenda. AAP being a new party and has shown the courage to ignore media to a great extent. I believe that it is a good augury.
4. Political parties are subordinated to business interests because of the  heavy contributions they have made to all important political parties. We know how the bureaucrats, politicians and business curry favor among themselves. Whatever exhortations they make in public are meaningless since businesses know hot to call their shots at critical times. Their lobbying techniques are far more effective and long lasting.  AAP has shown courage to take on some of the large corporations and to expose their omissions and commissions. I believe that they will continue to do the same by bringing them under the purview of strict surveillance on wrong things they are doing.   
5. My experience is that major political parties make more promises and fail miserably in delivery. Though AAP was in rule only for 49 days in Delhi, they had implemented some of the reforms that had promised in manifesto without any fear or prejudice, particularly in areas like electricity tariff, water charges, eradication of corruption etc. For instance, a national daily had conducted a survey immediately after AAP came into power in Delhi and found that some of the most corrupt departments like Transport division, DDA etc. had shown remarkable progress in containing corruption.
6. AAP had  promised to contain the inflation particularly of  food articles and they were contemplating many steps like allowing farmers selling products directly to consumers etc. But such schemes have been put in the cold storage. There is an all round increase in prices of all food items in Delhi, despite the claim by the government that both wholesale and retail prices have cooled down. They are hiding the fact from the public that the percentage changes are mostly because of the base effect. Prices of medicines also have soared high.
7. Power corrupts and absolute power corrupts absolutely. BJP is in power at Center and in more than 10 states. There should be checks and balances for any political party or affilaitions, lest it would go berserk with power.
8. India needs change in power structure, equations and in articulating its growth strategies. Political parties, which were ruling for so many years have lost the appetite to create new structures. By giving AAP a chance to rule Delhi, we are enabling them to carry out their experiment in a microcosm to be superimposed on a wider canvas later.
9. AAP is a party of youngsters and most of its party members are ordinary people, who have been left out to the fringes by the successive ruling parties. Giving voice to those who have been left out will be the right risk cover against  massive agitations as are happening in other parts of the world.
10. Finally, I believe that AAP is secular in the true sense. That does not mean that its followers should become irreligious. What they have to believe is that faith is a private affair and at  the  macro level we are all proud Indians, irrespective of the religions that we have born into. Polarization in terms of religion is the greatest harm that we can do this country.      
         

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