What's more important: Saving the economy or electing a President?

  Politics in a comatose economy
Sutanu Guru, Managing Editor, THE SUNDAY INDIAN

Let's just say the housing society in which you live is on fire. What would be your priority? Running for fire extinguishers and trying to call the fire brigade or debating about who should cut the ribbon when the new building is inaugurated?

Something similar is happening in India. The political class, the intelligentsia and even the media is busy dissecting the biographies of the next resident of  the Rashtrapati Bhavan. In the meanwhile, the Indian economy is going into a tailspin that will kill, not just the jholawala dreams of this regime, but also the India story. Only the naive and the intellectuals who have not got over their post colonial mindset will fret about what rating agency Standar & Poor  says about India. Rating agencies in any case have a track record that would rival even the worst policy blunders of UPA-2. Just talk to common Indians in cities, towns and villages and you will realise the horror of what is happening to the Indian economy and how it really need not happen.

The entrepreneur who can is running away with investment plans to overseas destinations.The entrepreneur who can't run away is cursing fate. That favourite guinea pig of the jholawals – the common man – is bewildered at the ferocity and persistence of rising prices even as the Finance Minister and the Prime Minister offer placebos, platitudes and puff. The farmer knows he has three choices – migrate to a slum in a city, become a dacoit (maybe even a Maoist) or just commit suicide. The job seeker is Waiting for Godot. Mother India is witnessing her economic innards being eviscerated by a bunch of buffons.

And yet, we seem to be perversely obsessed with palace intrigues, conspiracy theories and worse relating to who the next President of India would be. Should it be a woman so that she can give more pious speeches about female foeticide? Should it be a Dalit who can tell Mayawati that her quest for power in Delhi will remain an illusion? Should it be a Muslim who will shake hands with Asif Ali Zardari and tell him that India treats Mulsims better than Pakistan? Can Sonia and Rahul Gandhi trust Pranab Mukherjee in Rashtrapati Bhavan in 2014 when the Indian voter cocks a thumb at dynastic delusions?

Quite frankly, how the hell does it matter? Just name even one small problem confronting India that the election of the President can help solve? And really, let us stop this nonsense about the President of India valiantly trying to protect the Constitution and save Indian democracy from autocrats. As if Fakhurrudin Ali Ahmed did it in 1975. Let us
not even talk about the embarassment that the current incumbent is. Presidents rarely, if ever, can stop the ruling class if it is determined to rape democracy. One of the most respected residents of Rashtrapati Bhavan in contemporary times has been our own missile man A P J Abdul Kalam. And yet, it was Kalam who gave a long distance nod (from Moscow) to a UPA diktat that denied Nitish Kumar a shot at chief ministership and imposed "President's Rule" in benighted Bihar.

You know: the role of the President and the Governor in contemporary India is even more overrated than the alleged social consicience of Aamir Khan. Cut out the ceremonial nonsense and the potential for mischief and you will realise they are relics. In fact, the behaviour of our Governors has been a bigger blot on democracy and the Constitution than the much maligned political class. No other event or action can match the irony of ND Tiwari as Governor of Andhra Pradesh frolicking in the Raj Bhavan with a bevy of nubile nymphets. At least, Tiwari was having fun and not hatching plots to obstruct, harass or even dismiss democratically elected chief ministers at the behest of Delhi! Surely that must count for something?

So for heaven's sake, make anyone the President. It would not matter at all. But please pay more attention to the present state of the economy. Do not fall for the emerging propaganda that so called "reformist" measures like allowing FDI in retail will revive the Indian economy. That is a hogwash. The problems go deeper, far deeper. Essentially, this regime has been spectacularly successful in dragging policy making back to the 1960s and 70s mindset where the sarkaar was the Mai Baap. You cannot threaten an economy onto a high growth path. You need to provide incentives and be fair, if not transparent. Most importantly, you have to stop clinging to dogmas and use common sense. Look at what the Reserve Bank of India has done. In the name of controlling inflation, it kept raising the interest rates till it virtually destroyed capital investment, apart from millions of middle class dreams. And was the inflation controlled?

My suggestion? Make the entire National Advisory Council (NAC) the President of India. They can play with their aam aadmi theories in the lawns of Rashtrapati Bhavan. At least they will not be playing with the future of India...

Perform or perish

India's consistently dipping GDP has stepped up a frenzy of calls for hastening the reform process. KS Narayanan looks at the larger picture. (With inputs from Parimal Peeyush and Mona Mehta, Mumbai Bureau)

That the global economy is facing a severe slowdown is not new. Nor is there anything astoundingly original about India's Gross Domestic Product (GDP) slumping down from 9.5 per cent during 2005-06 to 6.5 per cent during 2011-12.

But what has startled those watching the country's growth trajectory -  which includes potential investors and policy makers globally and in India -  is the quiet slide of the GDP to a measly 5.3 per cent during the last quarter of March 2012.

There are good reasons to worry as the Indian economy grew at its slowest in nine years after clocking 9.5 per cent in 2005-06 to 6.5 per cent in 2011-12.

But the chips were really down this week when policymakers went into a damage control mode after global rating agency Standard & Poor (S&P), in a report titled '"Will India be the first BRIC fallen angel?" warned that slowing GDP growth and political roadblocks to economic policy making could put India at risk of losing its investment-grade rating.

Standard & Poor's Ratings Services revised its outlook on India's "BBB" – long-term sovereign credit rating – which is one notch above speculative-grade – to negative from stable in April this year because of lower GDP growth prospects and the risk of erosion in its external liquidity and fiscal flexibility.

There are attendant problems as well. The negative outlook also reflects the risk that Indian authorities may be unable to react to economic shocks quickly and decisively enough to maintain its current creditworthiness.

With widening trade and current creditworthiness, the country has suffered mild erosion in its economic profile.

The UPA government's much-flaunted  aam aadmi faces the unenviable prospect of high inflation, squeezed by interest rates, a vastly devalued rupee, spiraling petroleum prices and household budgets spinning out of control.

The S&P report is a scathing indictment of UPA II. "The division of roles between a politically powerful Congress party president, who can take credit for the party's two recent national election victories, and an appointed Prime Minister, has weakened the framework for making economic policy. Manmohan Singh did not run for office in 2009 and, according to many political analysts, appears to have less influence within the Union Cabinet than previous Prime Ministers. In fact, the Union Cabinet is appointed largely by Sonia Gandhi and leaders of the allied parties, who choose their own candidates for the Cabinet posts allocated to them within the coalition...Moreover, paramount political power rests with the leader of the Congress party, Sonia Gandhi, who holds no Cabinet position, while the government is led by an unelected Prime Minister, Manmohan Singh, who lacks a political base of his own," the report says.

Instead of acknowledging this "decision paralysis", the government has gone into   a defensive mode. First off the block was Finance Minister Pranab Mukherjee who said the findings were not based on fresh rating action. “There will be a turnaround in the growth prospects in the coming months," he noted, pinning his hopes on reversal of interest rate cycle, weak crude prices and a normal monsoon.

Consider a classic example of policy paralysis afflicting the UPA government in the context of power and infrastructure sectors. In January this year, Principal Secretary to  the Prime Minister's Office (PMO), Pulok Chatterji, considered a key  government pointsman on economic and infrastructure issues, was asked to step in to head the Prime  Minister's initiative to ramp up India's coal production.

Despite much hype, nothing has moved on the ground. Industry body ASSOCHAM has expressed concerns about coal production lagging well behind the demand. The worst hit is the infrastructure sector which includes power, steel, cement and the ambitious Ultra Mega Power Projects (UMPPs), that failed to take off. "We are being forced to import coal from countries like Indonesia.  Unfortunately, even some coal blocks bid for Indian firms overseas are facing different problems," said ASSOCHAM president and Rajya Sabha MP Rajkumar Dhoot.

Despite a recent presidential directive to Coal India Limited (CIL) to supply a minimum 80 per cent of the requirement to power companies, CIL has expressed its inability due to low production.

The Central Electricity Authority (CEC), along with the Power Ministry is now said to be working on a mechanism for importing coal to meet the shortfall.

In a rap on the knuckles, CIL's laid-back attitude has come in for severe criticism by former Coal Secretary Alok Perti, who noted that the Initial Public Offering (IPO) of the company in 2010 was supposed to bring in a change in the attitude of the management, but that never happened. "When we brought CIL's IPO, there was a feeling that it would usher in better management and we thought that for quarterly reports, etc the board would be more professionalised. We find that is not the case and I think that Coal India needs to modify for change," Perti noted, calling for drastic improvements in the management standards of the company.

With domestic coal prices on the rise, thermal coal imports to India are expected to reach up to 95 million tonnes this year, up from 68.92 million tonnes in 2011. Coal imports stood at 73.25 million tonnes and 59 million tonnes in 2010 and 2009.
  
Little wonder that the Finance Minister’s confidence stems from the sharp drop in industrial output in April 2012 at 0.1 per cent from 5.3 per cent a year ago that would force the Reserve Bank of India (RBI) to slash rates to boost the slumping economy on June 18 when it will do the first mid-term credit policy review.
But questions are now being raised about the ‘hows’ and ‘whens’ of this turnaround. With political parties grappling with their choice of the President for Republic of India, the riddle is all set to continue for sometime.

R Gopalan, India’s Economic Affairs Secretary too has trashed the S&P report. “There may be some hidden criteria (which S&P follows) which they didn’t explain it to us. You cannot judge us on a few parameters. We think we are in a much better condition than they think we can be".

To buttress his point, Gopalan says the firm gave Spain a better rating than India despite Madrid seeking emergency financial aid for its banks and struggling to raise money from financial markets.

Similar arguments came from unexpected quarters – in this instance from a leading industry chamber – which has been commenting on how decisions are delayed and projects are languishing due to policy paralysis.

At the same time ASSOCHAM President, Rajkumar Dhoot, who met Prime Minister Manmohan Singh on June 12, did call the S&P report a "collection of newspaper reports."

"The S&P rating agency, which has downgraded India's rating, gave a very good rating to Lehman Brothers which collapsed in the same year. Moreover, after the downgrade, the US economy had an incremental 1 per cent growth. We may also achieve 2 per cent incremental growth," Dhoot told TSI, adding that he has requested the Prime Minister to speed up infrastructure projects, among other things.

However it isn't the first time that the Prime Minister has met industry captains. In the last six months or so, there have been innumerable assurances from the PM and his cabinet colleagues without any concrete decision to boost the economy.

Notwithstanding the outcry, the downgrade will have its repercussions as it will become more difficult for the country to raise external loans, foreign investors will reduce their investments in stock markets and the rupee will become weaker.

Economists, industry chambers and big businesses across the country want the UPA government to get into pro-active mode. Infosys co-founder Narayana Murthy did not pull any punches when he was quoted from a Morgan Stanley report of June 11. "There was a lot of confidence that India would indeed do whatever was necessary because the person who was the face of economic reforms in 1991 is our Prime Minister. Therefore, there was a lot of expectation from outside India. Over the past 3 to 4 months, India's image seems to have suffered. As an Indian, I feel very sad that we have come to this state," the second largest software exporter said, noting that there were no reforms between 2004-11.

Without mincing words, IT czar Azim Premji was more candid. "We are working without a leader as a country. If we do not change, we would be down for years.''

In a recent letter to HDFC shareholders, Deepak Parekh, Chairman HDFC said that most of the economy's problems in the "recent period have been self induced – lack of fiscal rectitude, uncompromising coalition partners, inability to gain consensus on crucial legislation, stalled reforms, corruption scandals and a sense of apathy towards foreign investment."

But he didn't forget to add an appreciative footnote. "Despite this, India has managed a GDP growth rate of 6.5 per cent in FY 2012. In relative terms, compared to most countries, India's growth rate is still impressive. The disappointment is that India's performance is  significantly below  potential. Alarm bells have been ringing with deteriorating macro-economic parameters."

Others too have their bucket lists ready to rejuvenate the world's second largest growing economy after China. R Swaminathan, Senior Fellow, Observer Research Foundation, has listed several pro-active initiatives he expects from the government to boost economic activity (see box).

Pointing out that current conditions are not good for expansion in domestic or global economy, Prof N R Bhanumurthy of the National Institute of Public Finance and Policy, says that India cannot grow at a higher rate, given the challenges on the domestic front. “PM Manmohan Singh has to push the infrastructure sector and achieve the target of $ 1 trillion through public-private partnership as well as slash subsidies on diesel that will reduce pressure on interest rates," he said.

Even few within the government do acknowledge that slow decision making has stymied India’s growth story. For instance Planning Commission member Arun Maira says  people are dissatisfied with the progress of various government programmes. “As programmes get stuck at the centre and state levels, further progress gets stalled”, he noted.

Shoots back D H Pai Panandikar, President of the RPG Foundation and former Secretary General of FICCI, "How can you wake up somebody who is already awake” when asked whether the UPA II was able to read the wake up call.

He adds: “Reforms are not taking place. Since the UPA government came to power, there have been no reforms. So the economy is not moving forward. India could pitchfork itself into a crisis if things continue like this.''

The writing on the wall is clear. Some analysts want to quote Deepak Parekh who famously said that "a few bold policy measures will go a long way in changing the lives of a billion Indians''. If not, then get ready for the curtains.

Right Choice

Pranab Mukerjee is fast emerging as the first choice for Rashtrapati Bhavan, reports Pramod Kumar

The first extended meeting of the Congress Working Committee (CWC) on June 4 had a one-point agenda: what should be the UPA government's priority in the remaining period, in run up to the general elections in 2014?

For the short term, it was how best to salvage the reputation of the government. For the long term, it was agreed upon by all members present that the new resident in the Rashtrapati Bhavan should be one amongst them, the Congress being the single-largest political formation, so that in the eventuality of a ticklish result in 2014, the President could come in handy.

But what transpired at the CWC had a certain sponsored ring to it. For example, Haryana Chief Minister Bhoopinder Singh Hooda mooted a mini-Kamraj plan in which those party leaders perceived to have not lived up to Rahul Gandhi's expectations, need to be shown the door.

On the other hand, there were veiled attacks on Prime Minister Manmohan Singh with suggestions that UPA 1 had been successful because Sonia Gandhi was in charge: UPA 2 is not as successful because Sonia had a reduced role and it was Singh who held the upper hand, hence things had reached this pass.

In the middle of this polemic, Union Finance Minister and Congress's principal trouble shooter Pranab Mukerjee set the cat among the pigeons when he surprised everyone by saying what many thought would be obvious; the choice of the new President of India should be left to the Congress president.

So even without proposing his own name, Pranab had in a sense, forwarded his own candidature for reference. According to those who attended, the proposal reflected Pranab's standing as a senior statesman within the Congress ranks, a status which comes naturally to a man who heads 17 Group of Ministers (GoMs) and eight Empowered GoMs and is by far the most experienced minister in the UPA ranks.

That appears to be the overriding consensus within the party itself which looks all set to forward Pranab's name for the Rashtrapati Bhavan.

The CWC was followed by a Core Committee meeting the next day which arrived at two broad decisions. First, Manmohan Singh should take over the financial management of the government and there was immediate need to find a successor to Pranab.

Well placed Congress sources say two streams are flowing simultaneously in the party. One, Pranab has let it be known to his party leaders that he has friends even inside the NDA who would be more than keen to see him as President. Two, the PM held a review meeting of the Energy Committee to discuss its somewhat negative conclusions with key bureaucrat Pulok Chatterjee.

When the PM asked for Planning Commission's flagship Evaluation Report to review the seven sectors under Pranab's consideration – coal, civil aviation, port, railway, road, power and urban development – the results were not exactly spectacular. For instance, the National Highway Authority of India (NHAI) in UPA's first tenure had kept an average of 21 km of roads to be build every day: today that average has shrunk to 2 km.

The results were about the same in the rest of the sectors. The massive investment planned in infrastructure is yet to materialise with the Finance Ministry throwing up its hands citing resource constraints.

The Finance Ministry has also rejected the railway demand for additional grants saying the ministry is capable enough to raise its own resources. Pranab Mukherjee  is also known to have rejected some proposals that have come through the Sonia Gandhi-led National Advisory Council (NAC) off late.

At a meeting of the Planning Commission, Pranab Mukherjee went as far as to say that while it was necessary to provide money for some ambitious social projects of the UPA government, it was necessary that other kinds of projects generate their own money.

That has presented its own set of problems with several ministries questioning the United Progressive Alliance (UPA), why it cannot run government schemes through selling shares of the Navratna companies, a practice much in vogue during the National Democratic Alliance (NDA) years.

But the Prime Minister was appreciative of Pranab's line of thought that private-public partnerships are the growth models which need to be adopted and practically put his sign of approval on the proposal.

If party sources are to be believed, Sonia Gandhi, after meeting 43 officials and senior Congress leaders at the Congress Working Committee (CWC) meeting, told them informally that Pranab Mukherjee's name as the next President of India would be announced through TV channels before she leaves for a visit abroad shortly.

Even though it did not happen the way she promised, Civil Aviation Minister Ajit Singh's largely unscheduled visit to meet Home Minister P Chidambaram in South Block and his unilateral announcement of Rashtriya Lok Dal's (RLD) support for Pranab as the new man in Rashtrapati Bhavan, was seen as part of a calculated Congress strategy.

Pranab's elevation as head of the state is also being seen in the light of his repeated statements that he is not going to contest any more elections, which in a sense puts him in the league of statesmen who are above party politics and other petty differences.

Support for the veteran Congressman is coming in from across the political spectrum. Bharatiya Janta Party (BJP) leader Maneka Gandhi, taking a line different from her party, told TSI that Pranab was the most suitable candidate for the post. And despite media speculation about the so-called resistance by West Bengal Chief Minister Mamata Banerjee to Pranab's name, inside sources say it is more of a gimmick designed to get more benefits out of the UPA government than anything else.

According to well placed sources, Pranab Mukherjee has the support of the Samajwadi Party supremo Mulayam Singh Yadav and former Tamil Nadu Chief Minister K Karunanidhi assured a visiting Congress leader and Union Health Minister Ghulam Nabi Azad that he will only support Pranab and no one else.

In addition, Pranab Mukherjee has support of several leaders in the National Democratic Alliance (NDA) as well. "How come?", asks CPI's Atul Anjan, "Pranabda has this very endearing habit of taking people's problems very seriously. For those who back the finance minister, his ability to act within the framework of the Constitution is widely appreciated and he could be politically neutral if the situation demands.''

JD (U) president and veteran politician Sharad Yadav told TSI that Pranab is among a select band of politicians who can rise above party considerations.

Positive vibrations from the opposition too are now in being widely expected. Says general secretary in charge of CWC Oscar Fernandes, "Given Pranab's standing, it is important that even the opposition back his name.''

Questions close Pranab Mukherjee  aide, P Guha,"Pranab da cannot become PM because Manmohan Singh happens to be Sonia's first and last choice. If he does not contest elections, what does he do?'' Maybe become the new man at Rashtrapati Bhavan.

20-point programme to rejuvenate Indian economy

•  Extend the price decontrol mechanism to diesel.
•  Accelerate FDI reforms in multi-brand retail, civil aviation etc.
•  Increase investment in infrastructure sector
•  Ease the monetary policy and bring down interest rates by 200 bps and CRR by 100 bps.
•  Expedite the implementation of GST
•  Bring in nation-wide energy reforms
•  Provide fiscal stimulus for investments across sectors.
•  Implement the integrated manufacturing policy proposed by the Commerce Ministry for setting up more    factories to generate employment and revive the concept of SEZs.
• Give industry and infrastructure status to agriculture
•  Create a nation-wide entrepreneurship incubation cell
•  Interlink all major rivers critical to jump-start the economy
•  Focus on creating a high-speed rail network among 30 Indian cities.
•  Increase focus and investment in skill development missions.
•  Digitise all government records to bring in greater transparency and reduce corruption.
•  Fast-track implementation of critical policies and projects like National Manufacturing Policy, National Electronics Policy and PCPIR etc.
•  Do not pass the Land Acquisition Bill in its present form.
•  Take steps to energise the coal sector by fostering  competition.
•  Strengthen frameworks for raising funds for infrastructure financing in the economy through instruments like municipal bonds
•  Pursue the objective of food security through productivity increase and agriculture marketing reforms.
•  Address the issue of repatriation of black money to immediately mitigate the BOP situation by entering into global revenue sharing agreements.