Saturday, September 15, 2012

India: Gambling For The Future

India is burning! Somewhat - or, so it seems on Facebook. But then India is rarely stirred, given the gravitas of our culture, our indifference to the shocks and flavours of the day. Irrespective of what the Facebook chatteretti says, life will go on in India: At least, that's what the Government hopes at this time.

In a way, the Indian cabinet has done well. Within 24 hours, they have broken through the shackles they found themselves into in the era of coalition politics and thrown the gauntlet back to various demagogues and populist politicians, who, despite being in the coalition and in the government, continued to behave as the opposition, trying to benefit from both sides.

In a way, these moves were expected. Indian government, and particularly its Prime Minister, was being lampooned in the world media for their inability to get anything done. The story of India's government for last few years have been the story of endless corruption, and nothing else. This was dangerous, particularly in these recessionary times: Many were fearing a tipping point when the India story becomes stale and international capital takes a flight, which, given that most of this capital has come in the form of Foreign Institutional Investment and were parked in the Bombay Stock Exchange and relatively easy to withdraw (as opposed to Foreign Direct Investment, which goes into factories, machinery and businesses and relatively harder to withdraw). This would have sparked a crisis in India compared to the one faced by South-East Asian nations in the late-90s, or Russia during the Yeltsin era and Argentina in 2001, setting the country back by many years and possibly creating a political disintegration. The Armageddon was very real and very proximate.

Then, a number of things happened. First, India's ineffective Finance Minister, Pranab Mukherjee, was retired upward as the President. Mr Mukherjee had earned a name for being a skilled political operator, which meant his policies were about endless adjustment and giving in to the demands of regional politicians with outsized egos: His exit from Cabinet somehow injected new initiative in the government. Next, the Indian government started a series of policy reversals, like the retrospective re-examination of various Foreign investment deals, which was threatening India's stature as a stable democratic country with a rule of law and discouraging even the little FDI the country manages to attract. Finally, came the bonfire of dithering, measures announced in the last 48 hours, which included highly contentious partial withdrawal of subsidy on Diesel, and allowing FDI in the retail sector, opening up the sector to large multi-brand retail players like Tesco, Walmart and Carrefour. They have also thrown open the Country's commercial aviation, unlike most other countries, and allowed the ailing domestic players to seek investment from outside. They have also okayed divestment in four Public Sector Units (PSUs), which is expected to raise £2 billion for a minority stake.

Indeed, these steps are only interim. The government needs to go further in reducing diesel subsidy and may need to raise at least double the current amount from divestment to meet its deficit reduction targets. There are a number of sectors outside Retail and Aviation that needs to be looked into if the urban jobs and growths have to return. The government may have to recalibrate its strategy vis-a-vis rural growth and, though it may shy away from land reforms and forcing capitalist forms in agriculture, it will expect some of that to come through the change in retailing and consequent transformation of purchasing and distribution. It will take further courage to tackle issues such as wasteful fertiliser subsidies, and one may expect these to be left untouched until after the next election.

The opposition and the allies took the streets, but surely their bluff was now called. Mamta Banerjee, a government ally, the West Bengal's Chief Minister and the naysayer in chief, now says that she would protest against the moves but will not leave the government: She continues to play to both sides but this time looks weak as the government has now exposed her duplicity. The BJP, supposedly the right-wing party whose own government in Gujrat will entertain the FDI with open arms and whose Chief Minister will soon be lobbying with the global giants to put up their HQs in the state, are currently protesting against these moves and trying to rally the public. But, though it seems counter-intuitive at this time, the government has suddenly seized the initiatives.

The Indian electorate has, in the past, punished corruption quite severely. This government has a terrible record in that regard, and if history is any guide, they are unlikely to be returned to power in 2014. The consequent political desperation, perhaps hopeless, may work out well for India. Much needed changes may finally happen, as no government trying to balance various electorate will never have the courage to pursue them at a more normal time. These changes will mean deeper integration of India into the global economy, and the global capital getting access to India's domestic demand, which is still alive and well. India's growth and prosperity in the last two decades were stock-market fuelled, and India was showing alarming symptoms of becoming a tycoon economy in the relative stagnation in the last decade or so: These changes, and if more follows, may now transform the inward-looking business sectors, retail (and as extension agri-business), domestic air travel (and by extension the transportation industry), and further, and open up new opportunities for newer players. Indian market will invariably mean that business models have to be adapted and innovations in service and delivery have to happen: This means more opportunities for Indian entrepreneurs and executives to play a greater and more rewarding role.

This is all a gamble, one that the usual democratic politics didn't allow us for a long time. But they were unavoidable, and irreversible too, whichever government comes to power. One would hope that this government, in its desperate twilight years, will push ahead with more and more reforms. This may break their coalition, and may, in the end, lead to a different configuration of Indian politics. But all this had to happen, sooner the better, and we arrive here almost by accident, as we run out of options: This always happens in India.

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