Does Yashwant Sinha Hold Solutions for the Economy?

The former finance minister has already given one solution - that the government should go, for the economy to bounce back. Yashwant Sinha has recently scaled up his attack, likening the current FM P Chidambaram to an “incompetent doctor“. If anybody from BJP or NDA or other opposition parties had said it, it would have been thought of as a stock view from the opposition. But coming from Sinha, observers would be more alert, especially if he has some real solutions for the current state of the economy. The one solution that he has already advocated for the falling rupee - which is to let it fall to wherever it goes - so as to save forex reserves, has already turned controversial, if not for anything else, for the sharp price hikes it would cause in fuels that are largely imported. Still, it shouldn’t be forgotten that Yashwant Sinha was the FM when India went through one of its severest economic crises. Sinha and his government had lost their jobs for tackling that crisis in a controversial way, but the nation had survived. 
 

He is perhaps one of the best examples of what an ex-IAS officer can achieve in mainstream politics. Not apolitical activism like what Arvind Kejriwal or Kiran Bedi pursued for long, but just plain old mainstream politics.

In that regard, Yashwant Sinha can be thought of as a pragmatic leader and not an idealistic one. He can even be thought of as an opportunist, but even then he has been an opportunist who also became a high achiever for the nation.

When he resigned after a 24 year long IAS career, as Joint Secretary in Ministry of Surface Transport, he was quick to join the highly idealistic socialist outfit, Janata Party. Later, when Janata Dal was formed, he would be a part of the new party, being close to Chandra Shekhar.

During Shekhar’s brief reign as PM, Sinha would get the crucial role of Finance Minister. Though it lasted for just over six months, Sinha had to tackle what was India’s worst financial crisis.

With India’s foreign exchange reserves at just $1.2 billion in January 1991 and depleted to half by June, barely enough to last for roughly 3 weeks of essential imports, India was only weeks way from defaulting on its external balance of payment obligations.

The government’s immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.

Though national sentiments were outraged and there was public outcry when it was learned that the government had pledged the country's entire gold reserves against the loan, it was a masterly move that saved the country from a disastrous default. However, the unconventional move caused the Chandra Shekhar government to collapse a few months after having authorized the airlift.

By 1996, when it became clear that Janata Dal was finished and that the new alternative to Congress was the BJP, Sinha joined the extreme right-wing party, thereby calling to ridicule his long-held socialist and secular history. But the move was that of a pragmatist and not an opportunist.

And for the nation, as well as for himself, it proved quite productive. He was appointed Finance Minister by Prime Minister AB Vajpayee in 1998, and as Minister for External Affairs in 2002. While being FM, Sinha was widely credited for pushing through several major reform measures that put the Indian economy on a firm growth trajectory.

Among them are lowering of real interest rates, introducing tax deduction for mortgage interest, freeing up the telecommunications sector, helping fund the National Highways Authority, and deregulating the petroleum industry.

However, he was also heavily criticised for going back on several of NDA's economic policy initiatives, for which he lost the job to Jaswant Singh in 2002.

Will he make an eventual comeback in 2014? Always a moderate, Yashwant Sinha doesn’t originally belong to the Narendra Modi camp of BJP. But if needed, he can again take a pragmatic step. And there is that rare chance that if allies and supporting parties don’t allow Modi to be PM, Yashwant Sinha can even end up as a consensus PM.

Can Raghuram Rajan Do Anything to Stop the Rupee Plunge?

Rupee continued its free-fall to touch 68.82 to a US dollar today, even as two RBI Governors - one outgoing and one incoming - continued the hopeless battle to prop up the Indian currency. With only days left for Dr. Raghuram Rajan to assume full charge at RBI, all eyes are on this relatively young economist, on whether he can do anything at all to save the currency.

No other Governor had entered this job when the economy was going through a tougher phase. Rupee has devalued beyond any imagination and is in dangerous uncharted territory. In fact, the going is so tough that Chidambaram directed Dr. Raghuram Rajan to be an Officer on Special Duty at RBI even while the current Governor D Subbarao was completing his last month in office.

The trillion dollar question before the nation is whether Dr. Rajan who couldn’t save the rupee while he was Chief Economic Adviser to FM can do so in his new capacity as the Chief of Monetary Policy. Since he has just started off in the job, the nation should be giving him the benefit of doubt.

If not for anything else, Dr. Rajan - who is not from civil service - should be supported for the very fact that his appointment is a novel experiment after three full terms by IASers.

And the civil servant from whom he takes over has not been an ordinary guy. D Subbarao has been the national IAS topper from the famed 1972 batch of IAS that include luminaries like ex-CAG Vinod Rai, Planning Commission Secretary Sudha Pillai, and Central Vigilance Commissioner Pradeep Kumar, among many others.

Still, it is widely believed that Subbarao couldn’t do much to save the economy.

Apart from that non-IAS background, Dr. Raghuram Rajan is also a high achiever by any measure. Among international economists, Dr. Raghuram Rajan needs no introduction.

His chief claim to fame is predicting the global financial crisis in 2005, right on the face of Alan Greenspan during his retirement, and not his educational pedigree that includes IIT,IIM, & MIT, nor his youngest ever climb to being the Chief Economist of IMF.

As a contrarian economist, who has had the conviction to take on even contemporary legends like Nobel laureate Paul Krugman, Rajan’s chief position these days is that monetary stimulus like, quantitative easing, can’t bring the world out of its financial crisis. According to him, austerity measures are more important, coupled with increased worker competitiveness and productivity as well as entrepreneurial innovations.

But that makes him disliked generally by workers as well as politicians, with Greenspan’s strategy being called by Rajan as ‘papering-out’ issues. And that also made him an unlikely advisor for the UPA administration whose chief strategy has been generous payout schemes to poor like NREGA.

Now, the fact that he has been called in to a more powerful role, despite this mismatch, indicates that UPA might be thinking about tweaking the entire economic policy framework.

On the flipside, there are many weak points in Dr. Rajan’s track-record. Critics would be sure to point out the little headway he has achieved after being appointed by P Chidambaram as Chief Economic Advisor last year, and by Dr. Manmohan Singh as Honorary Economic Advisor way back in 2008 itself.

Though the high-level committee on financial reforms headed by Dr. Raghuram Rajan did deliver a final report to the Planning Commission, it was not earth-shattering compared with the expectations.

Secondly, the current post of RBI Governor, can degrade to nothing serious for most candidates. Take D Subbarao, for example, whose contributions in this post are not likely to be debated much in the future.

Ironically, if Rajan takes his own advice to the workforce to be more innovative, more productive, and more competitive, we can expect a roaring lion itself in this now globally highflying economist.

Budget Shows Why India Resembles Canada in GDP, But Congo in HDI

India's Finance Minister P Chidambaram recently concluded his high-profile post-budget Google Plus Hangout which was well attended and insightful. During the Hangout, Chidambaram even made a brave prediction that, "There is nothing that can stop India from becoming the third largest economy in the world. We will be there along with US and China."

Anyway, the hype and the build-up to that Great Event and the Non-Event the budget always turns out to be, is just over. As usual, Opposition opposed the budget while the ruling circles hailed it as the greatest achievement since a long time. 

Stock Markets too played their role to the hilt. Long famed to deliver credit where it is due, markets tanked by around 300 points in appreciation. Not that the market’s appreciation matters. Thinking against the backdrop of India’s stark realities, market reaction should be taken as a positive, at least by all the non-market players who comprise the silent majority (98%+) of this vast nation.

Captains of the industry were, however, largely appreciative of the budget. Most applauded Chidambaram & Co’s hard work in delivering a fine balance between 180 degree divergences like fiscal discipline and cash-for-work program. 

Despite warnings from India Inc.‘s heavyweights like Naina Lal Kidwai of HSBC and FICCI to Aditya Puri of HDFC Bank that super-rich tax shouldn’t be imposed, Chidambaram did show the spine to implement super-rich surcharge this time itself, even though it is just for one year now. 

And not unsurprisingly, higher voices from the industry - from NR Narayana Murthy to Deepak Parekh - were seen applauding the move, exhorting fellow multimillionaires that they shouldn’t be this much stingy.

The FM himself had asked industry to take inspiration from Wipro Chairman Azim Premji’s recent giveaway pledge to the tune of Rs. 12,500 crore, by joining The Giving Pledge of Gates & Buffett. After all, as Chidambaram said, the move would affect only a miniscule percentage of the population. 

In fact, miniscule is not the right word, as the real number of affected super-rich are less than 50,000! Remember, this statistic, is about a nation that recently hogged world’s centrestage when an association of Swiss Banks recently remarked that Indians are one of the largest black money hoarders in their country.

The real reaction in the minds of the real super-rich was a sense of relief. While the majority of them heaved a sigh of relief that there is no breakthrough strategy yet to identify unaccounted wealth hoarding, the 50,000 affected HNIs would have heaved another type of sigh - because Chidambaram could have done worse. Not just through a higher surcharge, or by making it a permanent feature, but by introducing radical moves like Estate Tax, the necessity on which the FM had commented just days before. 

‘Introducing’ is not the correct word, as India had it long back, and even now most best-performing nations like US has it. Estate Tax would have gone a long way in better accountability of wealth hoarding, as this would have forced all forms of wealth - including land and jewellery - to be taxed whenever it is inherited from one generation to the next. 

The detractors of Estate Tax, of course, have their point - as during its previous implementation, many of the super-rich had found out ways to circumvent it. While that argument again emphasizes the oft-repeated point that it is proper execution that is missing, it is no excuse to not re-introduce Estate Tax.

The budget's key takeway question is what kind of growth is India aiming at? If it is the nation it is nothing but GDP, and if it is about companies, it is nothing but bottomline. This sheer focus on profit growth has kind of made the intelligentsia of this nation into economic morons who applauds only when bottomline bulges YoY and QoQ. 

But don’t we need a radically better paradigm for growth? The current bottomline-focused paradigm comes from the West, especially USA, where the resources-to-population ratio is starkly different. How can we keep on blindly following it, and even worse, struggle fatally trying to keep that course?

What should matter is not the Gross Domestic Product, but the Human Development Index (HDI). Whom are we fooling when we claim with the West that India is the world’s 10th largest economy by nominal GDP? We are fooling none but ourselves. Because, India’s HDI stands at a pathetic 134th rank with a value of 0.547. 

To put this performance in perspective, India’s position is worst in BRICS, with Russia at 66, Brazil at 85, and even China at 101. It is difficult to fool a comprehensive metric like HDI, as it takes into account almost all aspects regarding standard of living like health, education, income etc. 

And isn’t it an irony that despite the UN sponsored HDI being co-invented by Amartya Sen, his home country hasn’t yet figured out how to improve on that crucial front?

India's Human Development Index is comparable to Republic of the Congo, while our GDP is 142 times larger than the African nation.

Why don’t we have any politicians batting for HDI, as against GDP? Everyone from Dr. Manmohan Singh to Narendra Modi to Nitish Kumar is following the flawed development model which theorizes that economic growth will cause HDI to rise. It won’t, as is readily seen from India’s pathetic position despite growing super fast for more than a decade, and Gujarat’s equally pathetic position in HDI despite growing admirably under Modi. 

Even Sonia Gandhi’s cash-for-job program has fallen flat on the HDI front. The divergent tactics of Sonia or Modi can win vote banks for the short-term, but it cannot transform the nation forever.

Another striking example comes from Canada, whose nominal GDP is less than India's by $177 billion, but ranks high in Human Development Index, being the 6th rank holder in the world, against India's pathetic 134th rank. So, what has our focus and even success on the GDP front, achieved so far?

Is there a silver bullet to achieve better HDI for our people? Yes, there is, and it is called jobs. More jobs and more well-paying jobs. The best example comes from the tiny Indian state of Kerala, which stands above all states (yes, beating even Delhi) in HDI. Other famed development models like Maharashtra and Gujarat stands distant at 7th and 11th position respectively.

We can deride the Kerala Model by saying many things like it is a ’Money Order’ economy. Which is true too, as the state is heavily dependent on Non Resident Keralite (NRK) inflows from Middle East, North America, Europe, Australia, & New Zealand. 

It is not a right strategy too for a state to follow or encourage, but the point here is that only more jobs and more high-paying jobs can bring up HDI. In Kerala’s case, that jobs just happened to be in Middle East and elsewhere overseas.

Why does more jobs and more high paying jobs raise HDI? Because jobs begets jobs. High quality jobs create other jobs at least of reasonable quality. In Kerala’s specific example, despite being poorly industrialized, home construction is a massive activity in the state. 

But, today, it is very difficult to find Keralites doing manual labour for other Keralites. Rather, it is employees from Bengal to Gujarat, and Rajasthan to Tamilnadu, who are working there, as even an unskilled labourer’s daily wage is upwards of Rs. 500 in Kerala. In many Indian states, the wages is less than Rs. 100.

Kerala’s Middle East or overseas reliance is not the right model to follow, as it works only because all the income is repatriated back to the country due to poor investment prospects in Gulf and the Western world.

At the same time, it shows the power of lakhs of high-paying jobs. It is in this context that Chidambaram’s budget falls flat. Even its greatest admirers admit that it has no solutions to create lakhs and lakhs of reasonable jobs. 

But that is not the point either. The crux of the matter is that how can he kickstart such massive job generation when the corporate ethic of growth that is followed in India is solely of bottomline growth, which often mandates that jobs should be reduced massively to drive growth. More turnover and more profits with least employment is the corporate success mantra.

Instead, what the government and the nation as a whole should be applauding is best job creating organizations in quantity as well as quality, quarter after quarter, year after year, under a sustainable model, and not just stories of wealth creators and bottomline expanders.

The solution calls for a leader from a greater orbit. Like Gandhi, who foresaw the daunting challenge much earlier, and advocated the charka, self-reliance, and local sourcing of all essentials in our villages itself, making them self-sufficient, and providing gainful employment for all. 

It was perhaps a slower model of development, but wasn’t it what India really needed?

India Budget Puts Naina Lal Kidwai of HSBC & FICCI in Focus

During last several budgets, Naina Lal Kidwai had her hands full. As Country Head of HSBC India, she obviously had much to tell and much to do strategy-wise. But this time around she will be perhaps the busiest person around - apart from P Chidambaram and his core team - as FICCI's Chief.

She has already made her wish list clear. It includes a framework for better governance, clarity on CSR in the Companies Bill, implementation of GST, review of industry concerns on Land Bill, fast-tracking of land acquisitions, clarity on National Manufacturing Policy as well as implementation of National Investment & Manufacturing Zones (NIMZ) through Central-State partnerships, PPP in agriculture, amendments in Agricultural Produce Market Committee (APMC) Act, boosting coal production through ending Coal India's monopoly and privatizing it, and passage of reform bills in insurance and pension sectors.

That is undeniably a whopping list of wishes from the apex trade body, but people who know Naina Lal Kidwai upclose won't doubt whether such wide-ranging wishes would be met or not.

When Naina Lal Kidwai took over as FICCI President in December, it was a first for the largest and oldest industry body of India. The organization that was started by GD Birla in 1927 on the recommendation of none other than Mahatma Gandhi, was electing its first woman president, after 86 years.

But for Naina, it was just another first. She was the first woman to head an international bank in the country.

Even that was not her first in a life of pioneering achievements. Naina was the first Indian woman to graduate from the prestigious Harvard Business School.

Entrusting the leadership role to the veteran banker might just be the precise move that FICCI needed, as it competes with CII and ASSOCHAM to be more influential and relevant to its members.

But for policymakers in the Government, the selection of Naina Lal Kidwai might be a bit of a headache. Because unlike retired businessmen who are usually thrust with this role, here is a practicing businesswoman, who is known for her world-class professionalism and more importantly, her unique insights into the world of finance and industry.

Her career graph is a dream come true for any aspiring banker. Naina has done notable stints at ANZ Grindlays, Morgan Stanley, Standard Chartered, and PricewaterhouseCoopers.

But it was at HSBC - the world’s third largest publicly held bank - that Naina scaled dizzying heights. Long serving as Group General Manager and Country Head of HSBC India, Naina achieved global stardom when she was appointed also as Director, HSBC Asia Pacific.

She has also been trusted by global foods major Nestle SA with a Director Board position. Featuring in ‘Global Power Lists’ is nothing new to Naina, as she has been repeatedly featured in such lists by Fortune, Wall Street Journal, Financial Times, and Time Magazine.

As FICCI president, her recent comments on various policy issues may not appeal to everyone, but clearly reveals her rational thought processes.

Rather than echoing finance minister P Chidambaram’s view on more liberal banking licences, Naina has recently revealed what is the real problem, point blank. According to her, the real issue is that India is severely under-banked due to government banks controlling 70% of the market, but which are unable to expand as much as they can, due to lack of capital, which in turn is due to poor government funding as well as government’s reluctance to yield ownership.

The solution she proposes is simple yet powerful - accord all properly managed NBFCs some kind of licence to operate as regulated banks, especially as niche banks in their field of competence.

Naina can also be a contrarian, like in her recent candid remark that overtaxing the rich will just cause the Indian super-rich to shift base to investor-friendly destinations like Singapore, Dubai, or London.

Recently at WEF Davos, while hard selling India, Naina asserted that the India story has not gone away, but added that it has become more difficult for corporates to operate in the country. According to her, the government needs to act fast as it would be a shame if India missed the bus.