GDP

Turning the GDP (Gross Disappointing Product) tide!

Many years ago on my visit to China, I found most of the newspapers there giving a lot of attention in their front pages to decline in GDP, tapering of FDI into China and other such economic issues. In a blog post that visit, I rued that in India, our media doesn’t still focus on economic Roti, Rozgaar issues but spend disproportionate amount of columns on mundane political news and views. For the past few months, it has been good to see in India too, the media at last waking up to the slow down blues in the economy.  For more than a year or so, the entire country was pre-occupied with the Modi re-election issue and everything else did not matter.

Since the re-election of Narendra Modi and his government that too with a majority better than last time, the euphoria and the resultant expectations have been very high.  However, the party has been cut short by the bad news coming in on the economic front, day in and day out. There was a great opportunity for this Government with a new face as the Finance minister to have seized the opportunity when she presented the Union budget on the 5th of July and fire the economy. The budget was a decent one but one that was devoid of Out of box, bold ideas which would set the economy on fire. In doing away with the brown brief case and opting for the bahi kaatha, Nirmala Sitharaman’s budget was a ritual breaker but, was not a path breaker! Hence, ever since the budget, there has been quite a few negative reactions as manifested in the tanking of the markets, depreciation of the rupee and a massive FPI pull out!

The initial reaction of the Government to these reactions were in expected lines that our economy was still resilient, one of the fastest growing and hence no need to panic. However soon enough, with bad news emerging on the Automotive sector first and then even on FMCG, the Government was forced into action and from then on we have been seeing a slew of measures, cabinet decisions and sops to revive the economy. Q1 GDP at 5% turned out to be the last straw.  Coinciding with the Q1 GDP results, the Government announced the merger of PSU Banks as a way forward in banking reforms. Economy was finally on top of the news cycle and the Government’s attention, Kashmir notwithstanding!

It was widely expected and hoped that some of the important initiatives of the Modi Sarkar in the 1st term like the thrust on Highways construction, massive investments in improving Railways infrastructure, improving air connectivity to the smaller towns, making electricity available to the last village and so on would start yielding results in terms of improving economic activity and fuel growth in the country. Added to this, Modi Sarkar has been constantly increasing outlays on MGNREGA in every budget. Why these measures have not started yielding results on the ground both in terms of economic growth and job creation is mysterious. It may be a good idea for the Chief Economic Advisor to come out with a White paper on the outcomes achieved for the massive outlays in Modi Sarkar 1.0.

In the back of all these, the question becomes, are the measures so far announced by the Government enough to resuscitate the economy? The reversal of some of the proposals in the budget are certainly welcome moves but those just contain the damage.  And the other measures like opening up of FDI and so on are necessary but not sufficient to get us back to where we were last year (8%) and then hit our dream goal of 10% GDP growth which increasingly is becoming a pipedream.

During Modi Sarkar 1.0, the Government leveraged well on the windfall it had from the crude prices and not passing on the entire benefit to the consumer to “manage” the economy with heavy public investments. The hope was that gradually the private investments will pick up once the sentiments change. But unfortunately, due to the NPA and the overall banking crises, it did not fire up the economy so much but, just kept the wheels of the economy going. Now, under the current circumstances however, continuing of public expenditure alone may not be sufficient. The recent red herring on the increasing debt of NHAI may in fact become a dampener here. For India as a country, the next few months are supposed to be very high on economic activity with the impending festival season. And the fact that the monsoons have been bountiful for most parts of the country notwithstanding the floods in some parts, there is still hope even for this year.

So, in order for the economy to fire up, ways and means have to be found for increasing private investments and individual spending/consumption. I am no economist but here are some thoughts:

To get private corporate investments going:

  • Modi Sarkar should bite the bullet and announce 100% FDI in Multi Brand Retail. Though India as a country missed the retail bus 10 years ago, it is still not late. Some of the global retail majors may not be as bullish today as they were a decade ago on India due to our policy flip flops and the current industry shift to E-Commerce. But still considering the country’s size and the potential it offers, India is still an exciting market for say specialised vertical retail stores. In announcing this, we should do away with the myriad sourcing conditions and allow the retail water to find its own level. Retail gives fillip to low end jobs, manufacturing industries as well as commercial real estate.
  • Copy the STPI (Software Technology Parks of India) strategy that helped in boosting the software industry in India in the 90s and come up with a similar framework for boosting Electronic hardware manufacturing in India. This will help India in becoming a preferred country for those who are looking at alternatives to China. Again we are late in this game and today Vietnam has emerged as an alternative to China for low cost manufacturing. But still considering the long term view, I believe we still have opportunities here.
  • Every Government recognises the potential of Tourism as an industry to provide jobs and improve economic growth. However, to unleash and unlock the true potential of India, we need massive capacity building in hotels, recreation facilities, connectivity and infrastructure. Government should provide time bound tax cuts for investments to private sector in this area to targeted locations in India which need infrastructural boost. The tax cuts must be linked to time bound completion of projects.
  • As a purely short term stimulus, any capacity building in manufacturing industry by way of new factories, expansion of plants,.. should be provided with tax relief.

To improve consumption and spending:

  • Holiday season is upon us. Provide relief on Income tax to individuals for money spent on holiday travel and stay in select locations in India which require boost on tourism (Uttaranchal, North East, Leh for example) with a cap of say Rs. 1 Lac. This will motivate public to take vacations and boost tourism in certain locations which have potential, decent infrastructure and connectivity but are untapped. Usually this has a spiral effect. When more people throng these places, automatically investments start pouring in for development.  For every 3 years, the locations can be changed in order to make it widely spread.
  • On the real estate front, today the supply is high and the demand low. This is mainly because the property rates are artificially pegged high and the home loans still high. This jinx needs to be broken. Though I have seen the Government announcing a slew of measures in the past few years, the housing market has not taken off. Considering the fact that the private real estate lobby is not going to cut prices ever, there is a need for the Government to intervene and disrupt the market. Like in countries like Singapore, Malaysia,.. Government must float either own companies or joint ventures to construct affordable housing in a massive scale and allot to citizens who do not own a single house in a transparent manner. The Government can offload its equity and then exit after say 20 years from these companies once the overarching objectives are reached. This will also disrupt the existing real estate industry and make it fall in line in terms of pricing and best practices, both of which are found wanting in the current scheme of things.

To revive the “animal spirits” in the Indian economy. Animal spirits are related to the points mentioned above i.e. both consumer and business confidence. I have put this separately as there are some low hanging fruits here which can be taken:

  • Sell Air India as of day before yesterday!
  • Get going on “Actual” disinvestment of Public Sector units already identified as non-strategic. Identify another Arun Shourie to make this happen in this term!
  • It is not enough to merge PSU Banks but to offload equity, get professional management and turn them to “HDFC Banks”!
  • Today many of the Government’s grand projects are stuck or going slow due to land acquisition issues. Identify the issues and fix them by bringing about the necessary changes in the Land bill!
  • Use the current crisis of job loss to build consensus around Labour reforms. Adopt the “GST council” approach for labour reforms. Today all state governments will eagerly come on board considering the pressure all states have on generating jobs.

As I write this blog, I am seeing that the Finance Minister is addressing a press conference. This is her 3rd one in the last 2 weeks. Glad to see the Government demonstrating the needed sensitivity to the economic situation and willingness to take steps. Our only urge is that instead of incremental small steps, we need big leaps.

Only that will ensure we turn the tide over Gross Disappointing Product and achieve real Gross Domestic Product rates quickly!

For more Olympic medals, need more Raghuram Rajans!

As I write this piece, the situation is slightly better. Only slightly. A tally of 2 medals – one Silver and one Bronze at the Rio Olympics for India. Just a couple of days ago, as a country it was all despair.  We were staring at a situation of returning empty handed and that was something for a proud and populous country like ours – ‘bilkul Shoba nahin deta’. The usual diatribes ensued. – “A country of 1.3 billion and just 1.3 medals!” “As long as we laud Cricket and applaud only Cricketers, there’s no hope for Olympic sports!” “So long as we keep praying for Engineers and Doctors in maternity wards, athletes will be hard to come by!” “As long as sports administration is in the hands of politicians, there is no chance for medals.” So on and so forth.  And these are nothing new. Every time our contingent returns with a modest performance it’s usually a repeat of the above template outrage.

Our rather modest performance in sports events historically could indeed be due to one or combination or all of the above causes. But I do believe there’s one more important bullet.  And that is the size and state of the economy. As we speak, USA is at the head of the medals table at Rio Olympics followed by Great Britain and then China. In terms of GDP, USA is at No. 1, EU of which Great Britain is a part as of now is at No. 2 followed by China. Russia which is at No. 4 has been a past economic super power.  The medals table at London Olympics looked almost similar.

olympics , gdp

China which has been at the 11th rank in terms of medal tally at the 1988 Seoul Olympics, has been at No.3 or better since 2000. Around the same time when China was deemed to have shrugged off the developing country tag and took guard as an economic powerhouse.

By this logic, we have hope. One would have thought that our good performance at the London Olympics in 2012 would be the tipping point as a country in so far as Olympic performance is concerned. However it seems that’s not to be. Drawing a parallel, doesn’t our economic performance mirror this?  A country which was on fire around 2011/Mid 2012 and gradually sort of lost its way and now seems to be on the recovery path once again.

While I am trying to draw a parallel here between the state of the economy and our sports performance, it could be just a coincidence.  But where I am coming from is, for a country to excel in sports and be at the top 10 of the medals table, it should be doing well economically.

Excelling in sports is today an expensive affair. It is not enough to have strong willed, talented and focused individuals. It calls for financial resources to be poured on infrastructure, training, coaches, equipment and the like.  And in a country like in India not just in cities but in fledgling towns as well which are now throwing up talent like never before. We keep hearing tales of talented girls stopping coaching sessions because of ill equipped toilets. Or those who give up when they cannot afford to spend money on professional coaches or facilities. And those who still cross all these hurdles and arrive at the National scene – need to be exposed at International levels for which you need to invest on foreign coaches or send them abroad for training for longer stints all which costs a lot of money that too when you need to do this not for 1 or 2 but 100’s of individuals.

An Abhinav Bindra did not have the need to fall upon the state or other sponsors to chase his Olympic dream. He was more than financially sound to acquire for himself the ecosystem required to win an Olympic Gold. But then all are not Abhinav Bindras. Ergo, you need the support of the state or private sponsors to adopt potential medal winners and provide all the support required without counting the last paisa.  Even for a noble movement like Olympic Gold Quest (OGQ) spearheaded by champs like Geet Sethi, V. Anand, Leander Paes, Padukone Senior,.. with a clearly stated mission “To Support Indian athletes in winning Olympic Gold Medals” the biggest challenge is to raise funds to achieve their mission. A fledgling economy doesn’t count the last rupee to sponsor a Sakshi’s stint abroad or a Narsingh’s 24*7 nutritionist. A struggling economy on the other hand will be hard pressed to focus on other priorities.

In much of our or water cooler or these days WhatsApp discourses, parents who think that their wards are better of chasing an Engineering / Medical dream than that of sports are at the receiving end. I do believe that in general, parents think of only the well-being of their kids. So if they do feel that a career in athletics is not remunerative enough to have a decent life, they can’t be blamed.  However this can change and it is changing. Olympic sports unlike in the past have started getting the attention from corporates who are willing to support athletes for a longer period of time. And just as we saw a few days back the bronze medal winner from Haryana – Sakshi Malik is already a dollar millionaire based on the many announcements we heard. This kind of commitments are possible for both the Government and private players if their coffers are growing with tax collections and profits respectively.

So as a country as we transition ourselves from a “developing” country to a “developed” country in the next couple of decades our economy will be in a better position to afford to support the needs of churning out Olympic champions.  So we are back to Bill Clinton’s 1992 campaign theme – “it’s the Economy, stupid” here as well. Our country has to continue to grow as an economy, lift millions of people out of poverty, collect a lot of taxes which will help pour money on giving birth to Olympic champions. So, for more Olympic medals, we need more Raghuram Rajans to help steer the economy on a continued growth path 🙂 🙂

“Dahi Handi” & the many parallels with India’s Economic Growth

It was the 29th of August, a day after people celebrated ‘Krishna Janmashtami’ with gaiety and religious fervour all over India.  It was almost around 9 pm and I was flying back after a same day return business trip, obviously tired.  I was lost in thoughts of the happenings around the Indian economy the last few days. The rupee had its worst fall in the last 20 years and nobody had a clue where it is heading to. The worst nightmares around India were coming true one by one.  Finally India beat China – China was supposed to slowdown first but we beat China on this!!! On the flight for a change we were spared of the usual traffic congestion over Mumbai and we were promised a prior to schedule arrival.  Closer to touch down, one could see the narrow streets of Mumbai lit up in sparkling Chinese lights, crowds gathered around some junctions and an overall frenzy. It just dawned upon me that on that day in Mumbai and may be in few other cities in India, the “Dahi Handi” (Curd pot) ritual was played with increasing vigour year after year.  As per Hindu mythology, Lord Krishna as a child used to steal butter from earthen pots hung high from the ceiling of neighbours. The practice to emulate this has become an increasingly popular event in cities. The earthen pots migrated from inside houses to main roads, streets and housing complexes and Krishna’s surreptitious acts of theft have now become open opportunities for groups of men (called Govindas) to excel in broad day light in front of thousands and take home rich bounties chipped in by many a sponsors!!!

As my cab took right from the Western Express Highway (yes, in Mumbai we call long stretches of road at times narrow, at times wide, with intersecting signals every kilometre, with slow inefficient toll plazas slowing down the traffic and with no concept of a hard shoulder to use in case of emergencies – as Highways and Express ones in that) the traffic congestion which we were spared of while on the sky came to haunt us with a vengeance on the ground. The traffic quickly graduated from being slow moving to “No” moving. I got out of the car and it took me just few seconds to realize that the battle between the “Govindas” and the “Dahi Handis” perched few metres from the ground was gathering steam and so traffic blocks be damned. I decided to let myself consumed in the atmosphere and observe what’s going on. I had not watched one in such close proximity before frankly. As I watched the proceedings I could draw few parallels between the Dahi Handi ritual and our country.

dahi handi,1

The Handi I guess was suspended about 20-25 m high and I heard that the height varies from mandals and it could be even 40 m +. The chants of ‘Govinda ala Re and ‘Haathi Ghoda Palki Jai Kanhaiya Lal Ki’ accompanied by beats of the Dhol amplified the already noisy surroundings. It signaled the arrival of a group of Govindas all attired in yellow with sponsor’s logos (as is the wont nowadays) to take a shot at breaking the pot. They took a few minutes to size up the challenge and as the beats started hitting a crescendo they began the task of putting together the human pyramid. Expectedly, strong, taller men formed the base and layer by layer they built the structure. So far so good. With few thousands of people watching the scene with breathlessness some with jaws open like me, the tension was palpable. It was now time for the kids to be lifted up as the pyramid gathered height.  The pace slowed now. One could hear many instructions going around. It was clear that these groups practiced collective leadership and were mainly driven by instinct. With just few meters away from the pot, it was time for the last part of the pyramid – a small kid may be 6-7 years of age to be thrown into the ring. The boy wearing a yellow protective vest (happy to see that but surprisingly he was the only one to wear that) slowly helped by many limbs, biceps and shoulders gradually made his way up. The cheers now get really boisterous.  And as he reached the top and tried to balance himself – lo somewhere something went wrong and the pyramid fell apart and with it the hopes of the participants to hit the pot and jackpot accompanying it. It’s very difficult to pinpoint who did what and what went wrong.  What happened immediately after this was interesting. Few seconds of disappointment later, the group recouped itself.  Took a few minutes off breaking into a dance to ‘Sheela Ki Jawani’ and goading chants and went for the 2nd attempt.  Ironically they didn’t manage to break the pot in that as well. When the crowd withered away, we got some leeway and got out of the spot. Another group may be in a red uniform might have come next. They also might have given a crack at the pot. Might have failed once and may be finally accomplished on the 2nd or 3rd attempt. The 1st yellow group forgetting the experience would have moved on but with renewed energy to the next mandal and hopefully succeeded there.

I was soon in the cab continuing my journey back home and couldn’t help myself reflecting on what happened.  What I hear is that while the Govinda groups are highly enthusiastic about hitting the pot, there is no training or rehearsals done before the day. There are also no structured strategy / tactics adopted to hit the pot which could be of different heights from mandal to mandal. The groups just move on from place to place, size up the task, put together a quick approach and give it a shot to hit the bull’s eye. If it’s achieved well and good. Everybody is happy. The prize is won.   People all around are excited. If they fail, there is disappointment for few seconds. But there is no despair. They again give a try. May not do anything much differently.  May succeed this time. If not just move on and may be give a better try next year.  Political parties associate themselves with different mandals. Bollywood joins the party. As I mentioned before businesses are anyway part being sponsors for different teams.  The next day every year invariably newspapers report of a few hundreds of people who got injured and a few who even died due to mishaps and accidents in the whole Dahi Handi revelry. I asked the cab driver if there is any formula for success here. He said – Nothing Sir, just try, try and try till you suceed oops succed sorry succeed (YES!!!)

Unfortunately our approach to managing the economy and achieving growth rates is eerily similar. The breaking of the pot is similar to the GDP growth rate India can achieve. Just like the different heights of the pots it can be 6 %, 9% or whatever. Just like different groups trying to hit the pot, there are different groups working in different areas to make the economy grow and hit a GDP rate figure. The target may be 8%, 9%,.. in the beginning of the year but only at the end of the year depending upon the height of the handi we will know if we have hit the same or not.  Though we want to grow there is no structured plan or strategy which is put in place. We just hope that the consumption fuelled by our great growing population or economic growth in the developed nations will use more of our products and services and propel our economy. That’s the reason why our economy grows one year at 7 %, few years at 8%, drops to 5% and so on. If the GDP target growth rate is achieved, everyone is happy, plenty of jobs are generated, billions of FDI comes in, stock market booms, realty picks up,.. ,.. and there is happiness all around. On the other hand when the economy doesn’t achieve its growth, and goes down, it drags with it thousands of people who lose jobs, have to take pay cuts,.. like the hundreds who end in hospitals the next day injured. But is there a major despair?? No. Just a bit of disappointment and people just shrug off and continue their day to day work hoping to contribute to a better growth next year.  In governance too there is no leader but something called a collective leadership which essentially means no accountability. In the whole process of driving the economy, politics, government policies and corporates all play their part – sometimes helping the cause and (as we see these days) at times hampering the cause.

On the day when rupee depreciated close to 2 rupees to a dollar, there was panic and gloom in the corporate board rooms as reported by pink papers. But not on the streets. The Dahi Handi was going on in usual raucous fashion.  So that is India. We have our own way of balancing our lives by shrugging off our woes and still moving on in life with fun and revelry. The festival season has just kicked in. Janmashtami was just the start. Tomorrow is ‘Ganesh Chaturti’ – a time to chant “Ganpati bappa morya’ and forget what’s happening to our Rupaya!!!

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Save the #2012

On the 1st day of a New year – 2012, what I see all around is as one magazine called ” The Fear of the Known” !!! 2012 is being brandished as one of the worst years in decades to show up !!!

The build up to the year has not been the best for the world in general and for India in particular.  My focus of this piece is India.  GDP for this fiscal year is projected to be at 7.7% a steep fall from 10.4 % of FY2010.  Government’s fiscal deficit is expected to be at 5.5 % of GDP- up from last years 4.8 %.  Combined with this, the looming crisis in the Eurozone, upcoming elections in the US and the “Work in Progress” Uprising in the Middle East – the only certainity is the uncertainity that is imminent.

The result is that the forecasts for growth for India in 2012 ranges from 6.75 % ( Moody’s) to 7.9 % ( ADB ) the only exception being 8.3 % by Goldman Sachs.  And these predictions were supposed to be optimistic and before the results are out for a worse Oct/Nov/Dec quarter !!!  Most of the Indian pundits have already cursed the Indian economy to be at 6 % which is now touted as the new “Hindu Rate of Growth”

All this has been reproduction of what has appeared in public domain.  So what’s new ? Just reading what the stars foretell for me for this year today – it appears that it will serve me good to stick my neck out and thats what I aim to do here.

My stick out prediction is that India is going to have a Rocking year meaning a fantastic year in 2012 with GDP ending up at 8 – 8.5 %.  Is it just a guess or wishful thinking or I am out of my senses ?  None of this. Its simple economics.  And my reasoning is as follows :

1. As one who has followed Indian politics and its tryst with economic reforms for 2 decades now, our politicians of the day ( any party / any front in power I mean ) resort to reforms when pushed to the wall.  That’s what happened in 1991 and that’s what will happen in 2012.  None of our famed finance ministers or PMs were/ are compulsive reformers. They were more “reformers under presssure”. This is true for Narasimha Rao, Manmohan Singh, Vajpayee, Jaswant Singh, Yashwant Sinha, Chidambaram and now Pranab Mukherjee. I’ve not seen them coming out open and selling to the public at large the virtues of reforms and carrying them out with sincerity.  ( As far as I remember Arun Shourie was the only politician who used to fight for reforms in public when he was the Telecom/ Disinvestment Minister ). With rupee on a free fall,  interest rates getting out of hand and fiscal deficit climbing up, the writing on the wall is of an economic crisis.  This is good enough reason to trigger the reluctant reformers to get back to the reform agenda which will propel growth.  I expect initiatives like GST implementation, FDI in retail, Land acquisition bill, Mining policy getting pushed without making a large hoopla or being touted as Reforms in this year.

2. For this to happen, the UPA government which is in a battered state must regain some confidence. And something tells me that they will get this confidence from their performance in the elections for the states which go to poll in the 1st quarter which includes UP. The public as we have seen know very well whom to punish ( as in TN/WB ) and whom to reward ( Bihar ).  There is no room for arrogance or last minute gimmicks to buy votes.  At the same time sincerity of purpose has paid whether it has been Bihar or Orissa or Gujarat or for that matter Delhi.  People want their rulers to put effort and they know that the results will not be immediate.  Going by this, Congress under Rahul may spring some surprises in the UP elections and that may provide the much needed filip to the UPA at the centre.

3. For a most part of 2011 through well orchestrated plugs in the media, India Inc has been posturing of ” flight of capital and investment” out of India if government doesn’t get its act together.  With the crisis in Euro zone, uncertainity in the US India Inc has only China to invest. My take is India and other countries will invest in China basically to stay competitive as long as it allows.  However purely from a consumption perspective, India Inc. will continue to invest in India.  Global environment will also force investments to come into India by second half of the year.

4. With inflation slowing down officially and interest rates softening I believe the worst is over.

5. That 2011 was the worst year for Manmohan Singh as a politician so far is a no brainer.  With so much of political issues threatening him to consume all over, his only ace up his sleeve is Economics. It will serve him well if he resorts to his strengths to set the agenda.

Though I’ve tried my best to logically reason out, much of it seems to be wishful thinking I guess.  But still I am going to stick my neck out for a Great Year for India in 2012 and I will be happy to have the last laugh and a Stiff neck !!!

Wishing all a year of GDP – Growth, Development and Prosperity !!!