(Source: BloombergQuint)

India@2017: A Flailing Promise

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  • I usually end the year by rummaging through old papers to spring clean all unwanted stuff. Imagine my ache when I found an old envelope from my parents containing a gift of Rs 51,000 in 102 crisp notes of Rs 500. Clearly, I had chosen to preserve the memory of my 50th year on this planet rather than spend it. And now the gift had become useless, or worse, criminal if I tried to squirrel it into the formal banking system after having exhausted all remedies offered by an astonishingly capricious Reserve Bank of India.

    That’s the tragic denouement of 2016, innocent people forced to become petty criminals for no fault of theirs.

    That daughter who bribed a doctor with a few extra old notes to buy medical care for her ill father. That clerk who begged his child's school principal to take Rs 1,300 in old notes for Rs 1,000 in school fees. That poor farmer who had to become a benami Jan Dhan cash hoarder for his annadata, the village landlord. Under India's post demonetisation laws, we have all become “coerced fugitives” under a brutal law.

    Yes Prime Minister, Deng Xiaoping Or Fidel Castro?

    I feel awfully squeamish about 2017, an exact inversion of how I felt around the same time last year. Then India throbbed with promise, of economic growth, entrepreneurial energy, sensibly changing tax laws and a peace dividend, even as the rest of the world grappled with uncertainties of referendums, troublesome elections, and stagnating economies. Our existential challenge was "how to get rich", while America and Europe battled the spectre of “why we are getting poorer”.

    But just one year later, we have imported all the ills from our past, while America, China, and Europe are unclipping their shackles.

    Then Prime Minister Modi echoed Deng Xiaoping's optimism when the latter exhorted the Chinese people to "get rich because that's glorious". Today, Modi sounds more like a revolutionary Fidel Castro, spewing venom and threatening anybody who holds a bit of cash with a Robin Hood style class war in which his tax and enforcement hounds will gleefully bite, slash, wound and incarcerate.

    It's a tragic return of the 70s, when the State ruled supreme, when everybody wanted their daughters to marry a government babu/doctor/engineer, while businessmen were ab initio evil, excoriated in crass Bollywood dramas as smugglers and philanderers. Unfortunately, entrepreneurial wealth creators/seekers are becoming “suspect” all over again, because anybody who's “got cash” lives under the presumption of guilt. It's a mighty regression.

    India's Big, Deep State Is Now Running Riot

    At the turn of this century, Prime Minister Vajpayee had triumphantly talked about rolling the Indian state back. No new public sector company was to be launched; many were being sold. Private economic activity had “irretrievably” overtaken an ever diminishing government in competitive markets. Private banks, broadcasters, telcos, IT companies, logistics providers, airlines – you name it, they were knocking the stuffing out of bloated state behemoths and creating jobs/optimism. While Vajpayee's two-term successor, Prime Minister Manmohan Singh, favoured larger social interventions, he stuck to letting private enterprises dominate economic transactions.

    Manmohan Singh, right, greets then outgoing Prime Minister Atal Bihari Vajpayee, left, before Singh was sworn in as the new Prme Minister of India at the Presidential Palace in New Delhi Saturday, May 22, 2004. (Photographer: Amit Bhargava/Bloomberg News)
    Manmohan Singh, right, greets then outgoing Prime Minister Atal Bihari Vajpayee, left, before Singh was sworn in as the new Prme Minister of India at the Presidential Palace in New Delhi Saturday, May 22, 2004. (Photographer: Amit Bhargava/Bloomberg News)

    Alas, after several years, public investments will exceed private ones by a mile now. And instead of getting petrified by this regressive outcome, it's being paraded as a badge of honour.

    We are falling into the quicksand of a 1970s-style statism, and too many are applauding. Scary.

    Equally fearsome is the tax-n-spend predilection of the Modi government. India's 7 percent plus growth is tom-tommed, but what is left unsaid is that a runaway increase of 15 percent in government expenditure fueled it - other, far more productive sectors are struggling. Which is why industrial jobs are waning, unemployment is scaling, and the government is pump priming television ad spends by slapping a Swachh Bharat cess here, and a Krishi Kalyan cess there.

    Disreputable, retrospective, extortionate tax demands – think Vodafone, Shell, Cairn - are being escalated, and newer expropriations being conjured up almost daily. Now indirect equity transfers in the secondary markets – exempt from long-term capital gains tax until just the other day - could attract a 40 percent levy. Meanwhile, foreigners are selling Indian assets in droves, banks' bad debts are stuck at $100 billion, the rupee is plumbing hitherto untouched depths and the stock markets have wiped off their heady “Modi premium” of 2014. The one segment which was beginning to stir with some excitement – private consumption expenditure – could plummet by a third, hacked down by demonetisation's cashless frenzy. Acche din – good days – anyone?

    But perhaps you ain’t seen nothing yet... Job reservations in the private sector? Ouch! Don’t rule it out, because Robin Hood politics/economics can be unstoppable.

    Maverick Trump May Yank Growth, Adding Insult To Indian Injury

    Now look at the rest of the world. A maverick Donald Trump is promising to shake up America's already-resurgent economy, in a good way. The dollar is strengthening, American growth is rebounding above 3 percent, interest rates are hardening – and God forbid, if he actually slashes corporate tax rates to under 20 percent, and induces U.S. corporations to bring back and invest a couple of trillion dollars held overseas, it could be boom time for Uncle Sam.

    As for China, it could have defied prophets of doom. Sure, it will slow down under the weight of its debt, but strong reserves and an energetic private sector could see it bank out without crashing...

    Now where will that leave India? Flailing in the wind, I fear... unless the government can recover its mojo. But if it continues to lurch from one vengeful misadventure to another, magnifying the tyranny of the state, even Lord Ram may not be able to help us.

    And that's why I feel queasy as 2017 dawns. How I pray I am wrong.

    Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of two books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, and ‘Super Economies: America, India, China & The Future Of The World’.

    BloombergQuint