The Modi government’s Achilles’ Heel

The monsoon session of parliament, which began on 21 July, is being drowned in a cacophony of politics. The Congress party has smelt blood in the Madhya Pradesh Vyapam scam and the Lalit Modi controversy that has embroiled the Rajasthan Chief Minister and the External Affairs Minister, and is digging in its heels over the Land Acquisition Bill.

The first law of politics is that parties that have the upper hand politically will not let go of the opportunity easily, never mind what damage it does to the economy. So the Congress party will not let parliament function without obtaining the heads of Shivraj Singh Chauhan and Vasundhara Raje – something the BJP is not going to oblige it with. So the land bill and GST could be casualties.

The real problem for Narendra Modi is that he needs those chief ministers more for the success of his five-year tenure than some of his own cabinet ministers, since growth and jobs depend on their ability to bring in state-level supportive reforms, especially when the Congress is blocking all legislation at the centre. If, for example, the burden of legislating sensible land acquisition laws will shift to states, Modi needs Raje and Chauhan (and some of his other CMs) more than some of his underperforming cabinet ministers. Continue reading

Posted in Uncategorized | Leave a comment

Why food security is not equal to Food Security Bill

One of the questions one is asked by conscientious people is this: how can anyone oppose food subsidies for the poor and robust schemes to end malnutrition?

This question comes from the heart, and so is worth answering in some depth. In fact, it is also a useful opportunity to debunk some myths about the Food Security Bill (FSB). Continue reading

Posted in Politics, Uncategorized | Tagged , , | 1 Comment

Pranab’s budget numbers are far from the whole truth

On 7 January 2009, B Ramalinga Raju sent a doleful message to the stock exchanges that he had fiddled with the company’s accounts by inflating assets – mostly non-existent cash and bank deposits, and overstated debtors. The hera-pheri added up to more than Rs 7,136 crore at that time.

Said Raju: “The gap in the balance-sheet has arisen purely on account of inflated profits over a period of last several years…. It was like riding a tiger, not knowing how to get off without being eaten.”

On 29 February 2008, a year before Raju’s confessional, the then Finance Minister P Chidambaram said a mea culpa to shareholders of India Inc while presenting his budget. He said: “I acknowledge that significant liabilities of the government on account of oil, food and fertiliser bonds are currently below the line….Our fiscal and revenue deficits are understated to that extent…”

Unlike Raju, Chidambaram did not dismount the tiger even after making that speech. Oil bonds continued to be issued, the budget continued to fail to reflect the true state of government finances and its liabilities to oil companies.

His successor and bete noire Pranab Mukherjee made a stirring promise to clean up the books and even patted himself on the back for keeping it – for all of one year. This is what he said in his budget speech this year. “In my last budget, I had stated that the government would avoid issuing bonds in lieu of subsidies to oil and fertiliser companies. I have adhered to this decision, thereby bringing all subsidy related liabilities into our fiscal accounting.”

It was a political fib. He said this despite knowing that the 2011-12 budget provision of Rs 20,000 crore for oil subsidies was over even before the year had begun. It was used to pay the previous year’s subsidy bill to the oil marketing companies. Continue reading

Posted in Uncategorized | Tagged , | 1 Comment

Chidu, man who reduced taxes, wants to raise them!

Palaniappan Chidambaram’s dream job is obviously his previous one. He made his name as the co-architect of liberalisation along with Manmohan Singh in the early 1990s. During the United Front government, he presented a “Dream Budget” which later turned out to be a nightmare for the economy, but it was noted for its bold strokes on tax reforms. The dividend distribution tax (DDT) is an artifact from that era.

As finance minister till end-2008 in UPA-1, all he may be remembered for is his flip-flop on 2G spectrum auctions, but history will be kinder. Among other things, he was the progenitor of several innovative — though flawed — tax proposals. These include the banking cash transaction tax (BCTT), the securities transaction tax (STT) and the fringe benefits tax (FBT). He also abolished long-term capital gains tax.

Barring STT and DDT, which are now widely accepted, the FBT and BCTT were widely hated and were subsequently legislated out of existence.

But despite being kept at an arm’s length from his favourite ministry, Chidambaram has not stopped ruminating on its challenges. He now thinks the budget needs resources, and the rich are the obvious ones to pay for it.

Taxing the rich has become the theme-song of governments all over the west in the post-Lehman age of huge government debts and jobless growth. The Economist ran a cover story on ‘Hunting the rich’. President Obama has also made some noises on taxing the rich after ace investor Warren Buffett said he felt guilty about paying less tax than his secretary.

Is India ready for a Buffett tax on the rich? Continue reading

Posted in Business | Tagged , | 2 Comments

Manmohan Singh’s theme is abdication of responsibility

One day, when the history of the UPA is written, the most difficult chapter will probably be the one on Manmohan Singh and the paradox he represents: an honest man presiding over gross dishonesty.

The answer to the paradox is, however, simple: it lies in The Peter Principle. Manmohan Singh is the ultimate exemplar of the Peter Principle at work.

Put simply, The Peter Principle, written by Lawrence J Peter, states that every person rises to his or her level of incompetence. The competencies required at various levels in an organisation are different. A great salesman may not make a great sales manager, but success at sales gets him promoted to sales manager – where he fails. Once he reaches his level of incompetence, there is no further promotion. But at even the current level – his level of incompetence – he does damage.

Manmohan Singh’s failure in governance – whether it is with the 2G or Commonwealth scams – stems from this principle. He has been promoted to his level of incompetence. A good reformer under Narasimha Rao, Singh actually played the role of a technocrat with solutions to the country’s problems in the 1991-96 period. That was his real area of competence. That  is where he earned the title of original reformer, even though it was Narasimha Rao’s political sagacity that enabled Singh to be a reformer in the first place. Continue reading

Posted in Politics | Leave a comment

How Vijay Mallya messed up with Kingfisher strategy

On 28 September 2011, nearly four years and four months after adopting a flawed business strategy after the purchase of low-cost carrier Air Deccan, Kingfisher Airlines finally read the writing on the wall and said enough was enough.

The airline’s flamboyant owner, liquor baron Vijay Mallya, announced that he was closing the low-cost operation. “We don’t believe in low-cost operations anymore.”

Actually, he is not quite right here, even though his statement is based on the fact that yields are better in his full-services wing, Kingfisher Class, rather than in Kingfisher Red – which, as the name suggests, is deeply in the red. Continue reading

Posted in Business, Managing | Tagged , , , , | 1 Comment

The Food Security Bill is one more costly UPA mistake

An ambitious draft Food Security Bill (FSB) has been put in the public domain by the UPA government for comments.

The draft promises 7 kg of rice, wheat or coarse grains per person per month to “priority” households at hugely subsidised prices of Rs 3, Rs 2 and Re1 a kg respectively. A family of five would thus get 35 kg of wheat at just Rs 70 a month.

The Bill proposes to cover 75 percent of the rural population and 50 percent of the urban population in its ambit, making it the biggest social security scheme in the history of independent India. It is UPA-2’s NREGA. Continue reading

Posted in Business | Leave a comment