My reflections at Prabuddha Bharat's STEP 2016

On 24-25 September 2016, Prabuddha Bharat Belagavi had organised a "State of the Nation Conclave 2016" the Conclave was supported by the Visvesvaraya Technological University and Rani Channamma University. The conclave was addressed by renowned speakers and I was also asked to present my reflections on the State of the economy. Below is the text of my reflections at the conclave.

"It is always a feeling of deja vu when you get invited to your home town and are given a chance to address a gathering of delegates in a prestigious conference. I must make it a point to thank Shri L K Havanur, The president of Prabuddha Bharat, Prof Sandeep Nair for thinking about me to be a person of some value to speak to the august audience.

I would  like to place before you my thoughts on three things about the state of the economy.

1. Economic themes post 2014: there is a paradigm shift in the economic themes post 2014 and the new government has been talking about two very important themes;

 

    a. Ease of doing business: we have been doing business, the wrong way for the past 70 years and have been able to bend rules backwards to accomodate our whims and fancies. The times have changed and also the new regulations on GST will change the way we conduct business in the country. whenever you go to the market to buy anything, the regular question asked is whether you want a bill for the transaction, if you want it then you wil have to pay VAT or sales Tax and the price of the product will go up by that extent. This choice is invariably offered by businessmen of all hues and sizes. With the implementation of GST, the question would become redundant as the seller would have already paid his part of the GST and would be eager to recover that amount from the buyer. Hence learning the clean way of doing business becomes more important. this to my mind is the real contribution in ease of doing business. business becomes easy when every body follows the same rules.

 

   b. Make in India: there is a lot to be done in promoting 'Make in India', a lot is being done though, labour laws are being tweaked slowly and surreptiously to make it easy for hiring and firing. But the challenges of Make in India are numerous. One of the biggest challenges is the Prohibitive Land proces and highly complex ownership structure of land holdings. this is one obstacle whcih is going to be diffifcult to remove and make "Make in India" easier.

2. Challenges faced by the government in monitoring the economy:

    a. Collecting economic data is a nightmare for our statiticians. Our IIP data is published three months late, Our inflation data is not relied upon by our own industry people. collecting, collating and computing GDP has become a bone of contention between private data aggregators and the government statitistians. Collecting authentic data in a timely manner is a big challenge for a country whose unorganised economy is larger than the organised economy.

   b. Building and maintaining an organised market for various commodities, products and financial services is another major challenge. creating an ecosystem of organised markets and then collecting and disseminating data are two sides of the same coin.

3. What has changed int he last two and a half years?

       

       a. A very personal example is that I have been asked to be on stage and present my reflections on the state of the economy. The organisers wanted me to talk about my thoughts without asking me about my lineage. This is the biggest change here. Earlier dispensation wanted only those with the right lineage to address gatherings. Being capitalist is no more considered regressive. Still some pockets of the civil (should we call them that) society think that being communist is being progressive. So first victory over the class war has been won by debunking the thought about left leanings being progressive.

     b. We have a government at the centre which has engaged a number of common citizens in a constant dialogue on governance with the help of loca circles and the mygov initiative on the digital platform. I appeal to all of you to please participate on this platform positively and constructively.

    c, Finally you have elected this government in the hope that the government cleans up the house. when you engage somebody to clean your house, remember that the cleaner is bound to reach undr your seat too to get the job done. therefore don't complain that the janitor has reached under your chair too. get up and declare your dirty assets to the government before the cleaner approaches you. these are the last few days available for declaring your black money, make the most of it and declare before the due date.

I would like to end my submission with the following lines

Mera desh badal raha hain, aage badh raha hain.

Thank you"

How to support the fight against Corruption

Let us all pledge to do our bit to free India from the clutches of Corruption and Black Money by taking these simple but very DIFFICULT STEPS

1. Ask for a bill on every purchase and pay the Sales Tax.
2. Give Receipts on every sale and pay the VAT/Sales Tax
3. Declare the correct amount on every sale or purchase of Land and Flat and Pay the registration tax that is applicable.
4. Never demand or pay a cash amount while buying or selling property.
5. Stop bribing the traffic police for traffic violations and pay up the legitimate fines.
6. Register for only one ration card, gas connection and electrical connection.
7. Pay electrical bills on time even for connections of farms.
8. Declare genuine farm income only and not club other incomes as Agricultural income to avoid taxation.
9. Do not pay or receive donations without receipts.
10. Stop acting as though the law is meant for the minions and not for us.
11. Stop running households on expense accounts of businesses. Declare real income from businesses.
12. Stop Bribing people asking for enhanced credit limits/ Loans etc in Banks and financial Institutions
13. Stop asking for kickbacks on commissions on LIC policies, General Insurance Policies, etc.
14. Stop buying Degrees and Diplomas online and apply for jobs with them.
15. Stop asking teachers to give more marks by bribing and coercing them.
16. Start giving receipts for services (especially Doctors): Consultation, Operations, procedures, etc. Other Consultants like Accountants, Tax Consultants, etc.

All these and much more....

Only if we start cleaning up our house and souls then we will be able to clean up the country. Our country is seeped in corruption not because of the politicians and bureaucrats but because, we tolerate corruption, we always believe the laws are for others and not for us. we always want to wipe out corruption but want to get farther by bribing somebody on the way.

THINK ABOUT IT!! IS IT POSSIBLE TO SACRIFICE ALL THIS!!

Hoping for a corruption free India!

INTERIM... INDIA

We are living history. This must be the only time in the history of India when we have a minister who is PM, FM and External Affairs Minister-all-rolled-into-one. Of course there is supervision by an extra constitutional authority against whom no one in India has the guts to talk. Are we a democracy? are we not a banana republic? are we not a dictatorship? we need to answer these questions as fast as possible if we have to find some semblance of sanity in our country.

Look at the irony of the country, we have a home minister who gives a statement on finance everyday. We have a part time finance minister presenting an interim budget. It cant get any more interim here!

The icing on the cake is the hopes built up by our gullible investors that an part-time finance minister with a mandate to present the interim budget will declare a stimulus package. How can you expect this to happen? The part time finance minister has his hands full in the external affairs ministry as he has to deal with the unprecedented diplomatic offensives from our neighbouring countries.

The election commission was expected to save face by showing readiness to conduct polls as and when the parliament is dissolved or at the end of the term. But internecine rivalry and party politics has also crept into the only non-partisan institution in the country.

The interim budget was, as expected a vote on account to help the government to spend money in the next four months from April 2009 to July 2009 so that the affairs of the state can be carried out smoothly. Expecting too much from this exercise was a wrong thing. As I had written earlier the stock markets would be meandering for a while until the elections. This is the time when the markets will probably bottom out. We can expect the indices to test the October 2008 lows in the meanwhile. The fourth quarter results, annual results and the results of the general elections will help the pessimistic sentiment further.

As far as the expectations of the results of the general elections go, I believe that we will see a completely fractured mandate and we would have a government which would bring in strange partners together and a coalition of opposite ideologies would be in power in for the next eighteen months at least. This period of "interim government" is going to continue for another 18 months now. Unless growth slows down to the "Hindu growth rate" or India heads towards a recession don't expect fireworks in the political arena nor the economic arena. Babus will continue to run the show and ensure that we slip into inactive mode.

State of the Economy and State of the State

Inflation inched up to 5.6% in the last week, it was attributed to the truckers strike during the period of study and all the big names in the financial industry are talking about inflation easing to 2-3% in the next three months. On top of this, these big names are calling for further rate cuts and reduction in statutory ratios for banks. India does not have a Glass Steagall Act, but it is common knowledge that investment banking and commercial banking are kept at arms length in the Indian banking industry. This arms length has significantly shortened in the last five years. In the banking parlance we have a new way of talking about this. Instead of calling these activities investment banking and commercial banking activities we call them by the kind of income they generate and name them as "fee based Income" and "Fund Based Income". Of course some investment banking activities would be fund based activities and therefore they form a grey area.

Now, if the rates are lowered and, what would happen? I happen to run a small "fee based business" and I am drawing this from my own experience. Banks have a PLR range of 12.75% to 13.25% (official RBI figures) and deposit rates of 7.5% to 9.6%, this leads to a margin range of 3.15% to 5.75% on the higher and the lower side. Risk aversion is the rule of the day fr banks these days, bankers these days are wary of giving loans. They prefer to have treasury income rather than interest income. meaning there is a positive bias towards the investment banking conundrum rather than the rig morale of commercial banking. because of the risk aversion I do not expect bankers to lower their PLRs, even if they lower their PLRs they will charge a premium on the PLR for all kinds of customers other than prime customers. Coming to think of it, if we go by the usual definition of the prime customer: steady cash flows, consistent declaration of profits, consistent IT returns, consistent IT payments, etc. i would say majority of Indian customers, individual as well as corporate fall under the sub-prime category. Then what do we do with the lowered PLR? Do we need this PLR only for declaration purpose on the RBI web site? Banks will still have a bad choice of borrowers and therefore will always be risk averse. Therefore expect banks to make more profits but at the cost of taking higher risks. (That's really a nobrainer as more risk only means more profit and there's no such thing as reckless profit)

Now the STATE of the STATE. All these days we had a government which was running on the steam and momentum provided by the Keynesian pump priming done by the earlier NDA government. The present regime was always waxing eloquent about growth rates and was complacent with doling away the tidings brought about by the higher growth rate. Economies grow or de-grow after a lag of two to three years of taking action on the economic system. now that this government is completing its term of inaction, complacence and profligacy, we have the PMs panel re rating the growth to 7% from the earlier projection of 9%+ growth. Has this been due to the global financial crisis? notwithstanding the global financial crisis the momentum of growth could have been kept up by committing public funds to developing infrastructure, housing, water supply, power generation, electricity supply, primary education, secondary education and other such worthy causes. But all these were given a go-by and the government resorted to the age-old "congress" method of appeasement and cheap populism of subsidising the rich farmer.

After this disaster, now we will be a country with an actually inactive Prime Minister for the next four months. doesn't congress have one able man / woman to entrust the top job? If the PM undergoes a cardiac surgery and has to convalesce for three months, can't this country find a replacement for this honourable man? Do we have no choice left at all? Why should Pranab Mukherjee chair cabinet meeting as the stand-in PM? What happens if we have a 26/11 type of a situation again or if we are forced to go to war with our ever friendly neighbours? Why can't the stand-in PM become the real PM? Where are all the so called strongmen from Bihar, Maharashtra? Why don't they claim a stake for the PM's gaddi now? Why should we rely on a Prime Minister (I have high regards for his stature and ability when he is physically fit) who is undergoing a bypass surgery for the second time and is required to take rest for three months? Can we afford to give a three month medical leave to our Prime Minister during this hour of crisis?

Are we De-coupling?

The Days of looking towards the west for market cues in the morning are on the way out. we need to look inwards and evaluate our economic conditions to take investment decisions. the process of decoupling of our economies with the western world has started in right earnest. Once the bail-out of the auto majors happens and takes concrete shape, that will be the last nail in the coffin of the way in which the 20th century business was carried out. 21st century will be different, companies will be required to tighten their belts, give away their private jets and start traveling economy class, eat food not designs and so on and so forth.

This era is the point at which the world will formally move from the industrialised economy to the knowledge economy. Only India is in an unique position where all the three waves of civilization defined by Alvin Toffler co-exist at the same time. That is the order of the day. governments are going to be more involved in business and more businesses are going to be more involved in government along with the others. India needs to learn a few things from this, here government is in serious businesses like

Power - equipment, generation, transmission, distribution, Iron and Steel - mining, smelting and manufacturing, Insurance, Banking, Heavy Equipment, Oil Exploration, Petroleum Refining, Marketing, Petrochemicals, Fertilizers, Food Processing, Heavy Engineering, etc..

The same may happen to the US in the next three decades.

The point I was trying to make is that "Government" has found that it also needs to be in "Business" if it has to Govern! (which has been the case in India for the last five decades).

So we come back to the cycle of Nationalization-Liberalization-Privatization-Globalization cycle which keeps on repeating over the decades.

Now the Government of India needs to stop and take a re-look and not get into the cycle. Just like all the three waves that co-exist in India, The economy also needs to strike a balance between public and private ownership to keep the economy going, without the hiccups a la US of A.