Oft expectation fails, and most oft there where most it promises; And oft it hits where hope is coldest, and despair most fits.” William Shakespeare, All’s Well That Ends Well.
Into the sixth month of the Modi Sarkar—and on a day it embarks on its first major expansion—a few thoughts and observations to ponder.
Like the burden of expectations weighing down the muscular leadership is matched evenly by the heartache of hope, of the millions who disinvested from scepticism and invested in change.
The good news is that there is order and a semblance of predictability in the political economy. What is foggy is outcome orientation and ministerial capacity to leverage it and deliver momentum for growth to be kick-started.
Like there has been some movement on reforms—principally in the energy sector and claims of speedier environment clearances—but much of the movement is lost in the babble of motion and emotion.
And the government has been blessed with luck— crude oil prices have dropped from $110/barrel to $82/barrel creating headroom to manage the deficit, the statistical base effect has created the optics of low inflation and the rupee has been spared the post QE2 trauma.
Hope is yet riding high but for the economy to grow, there must be lending/borrowing, investment that boosts output. Both borrowers and investors seem to suffer from a commitment phobia. Credit off-take—jargon for lending by banks—has been slower (at 3.8 per cent vs 6.4 per cent) and lower at Rs 2.25 lakh crore as against Rs 3.37 lakh crore between April and October.
Like there is euphoria in conference rooms but expansion claims/plans are yet grounded. Diwali was dominated by discounts; banks and balance sheets continue to suffer from a debt hangover; and most M&A are driven by “sell-to-buy” or “sell-to-survive” economics.
Of course the stock market has shot up. But it is also true that many stocks predicted to be trail-blazing stars in January have slipped like meteorites. Also, the rise of the indices has an element of serendipity delivered by the underperformance of the other emerging markets.
Like the government must worry about the pile of cash companies are sitting on—estimated to be over Rs 2.5 lakh crore, which they are not investing—or are unable to invest. The list includes top companies like Reliance Industries, Tata Motors, Tata Steel, Infosys, Wipro and PSUs like NTPC, Coal India and ONGC.
Like a useful indicator for signs of expansion/new investments is movement in real estate sector. Developers will tell you neither commercial nor residential transactions have taken off. Developers are stuck with huge inventories. And rating agency Moody’s observes that public sector banks are burdened by weak corporate financial health.
It is not as if the government is not aware or isn’t responding. There is no dearth of ideas and brand-wagons. The Modi Sarkar has exhorted Indian (and foreign) companies to “Make in India”. But is branding enough? India has high interest rates, high energy costs and the worst ranking in ease of doing business among its BRICS peers. The 100 Smart Cities initiative will create demand, boost employment and spur consumption. But how do you build smart cities or Make in India under a warped land acquisition regime? Ideas require policy follow-up.
Of course there is a legacy effect—the Modi Sarkar has inherited a wrecked economy. But there is also opportunity. It needs to focus on the last mile—for example stranded power and road projects. States like Odisha and Jharkhand are not unlike Vietnam or Malaysia—rich in human and natural resources. The Delhi-Mumbai Industrial Corridor is now the BJP corridor. Targeting specific geographies will yield better results.
One of the critical problems is the lack of ministerial talent and therefore capacity to propel change. Governments often underrate the challenge of human capital.
In 1971, Indira Gandhi decimated the opposition as her splinter group won 352 of 441 seats in a house of 518. This was followed by victory against Pakistan. Triumph though did not translate into trust. Her Cabinet had few notables—Y B Chavan, Jagjivan Ram, Swaran Singh and later C Subramaniam. The etymology of her fall was located in this talent deficit which resulted in governance deficit.
The induction of Manohar Parrikar—and hopefully Suresh Prabhu—into the Cabinet will definitely bolster ministerial capacity to propel change. But more talent is needed to boost the quality of discourse and action.
Modi campaigned on the idea of ‘Minimum Government, Maximum Governance’. Maximum governance demands quality talent and innovative resource management. Minimum government cannot be about the number of ministers—it must be about what the government chooses not to do and what it chooses to focus on.
Shankkar Aiyar is the author of Accidental India: A History of the Nation’s Passage through Crisis and Change