Its Tory time at 10 Downing

Yippee, there is a change in 10 Downing Street. After 13 years of “New” Labour, the Tories have got a chance to resurrect Britain. They have stitched up an alliance with Nick Clegg’s Lib Dems who have agreed to be a part of the coalition. Nick Clegg would be the deputy to David Cameron, 43, who is all set to become the youngest PM in over 200 years. Though there are ideological and practical differences between Lib Dems and the Conservatives, Clegg has asked his supporters to be optimistic and I cant imagine any other way out for him. He has serious differences with the Conservatives on cutting Government spending, Electoral reforms to scrap the “First past-the-post” system among other things, BUT seems to have got a good deal from the Conservatives.

As per BBC reports, the salient features of the deal are as follows:

• Plans for five-year, fixed-term parliaments
• The Lib Dems have agreed to drop plans for a “mansion tax”, while the Conservatives have ditched their pledge to raise the inheritance tax threshold to £1m
• The new administration will scrap Labour’s planned rise in National Insurance but some of the benefits will go on reducing income tax thresholds for lower earners
• A pledge to have a referendum on any further transfer of powers to the EU and a commitment from the Lib Dems not to adopt the euro for the lifetime of the next Parliament
• The Lib Dems have agreed to Tory proposals for a cap on non-EU migration
• The Conservatives will recognise marriage in the tax system – Lib Dems will abstain in Commons vote
• The Lib Dems will drop opposition to replacement for Britain’s Trident nuclear missiles but the programme will be scrutinised for value for money
• There will be a “significant acceleration” of efforts to reduce the budget deficit – including £6bn of spending reductions this year
• There will be a referendum on moving to the Alternative Vote system and enhanced “pupil premium” for deprived children as Lib Dems demanded

The last point is very important for the Lib Dems and they hope to see some action in the area of electoral reforms. Though I have my doubts regarding the longevity of this coalition, I wish the new PM and his team the very best as they faces serious challenges in the areas of Fiscal Consolidation, Britain’s Economic Growth and the crises in Euro zone. Hope they do well and regain the trust of Britain’s people.

P.S: Personally, I am happy because after a long time a party that I support has got the right results in an election Well, a majority would have been good but then…

Nitin Gadkari’s interview with Barkha Dutt

The interview can be viewed at Congress to blame for inflation: Gadkari.

While Gadkari is a refreshing change from his predecessor, he is still not walking the extra mile and setting a theme for the BJP. While he has countered most of Barkha’s questions, I was deeply disappointed when he gave abstract answers as to what differentiates BJP from Congress. He could have atleast mentioned something on the lines of Economy, Foreign Policy, Infrastructure policy etc, but all he chose was to quote Deen Dayal Upadhyay and Shyama Prasad Mukherjee. While that’s all fine to have that kind of ideology, BJP should start laying down its agenda for Governance – not at a very high/abstract level, but get to nitty-gritties and for sanity’s sake its spokesmen must stop issuing statements like price rise is due to Future’s Trading, so ban it.  Once the opposition party talks on the basis of a alternative clearly expressed agenda, it would be a giant leap for Polity in India.

NMDC & NTPC disinvestment – why the lukewarm response?

With the Finance Minister laying out the path for disinvestment of PSUs over the next one year, one would expect the market to lap upcoming offers in a jiffy. But NTPC and more recently NMDC have proved to be otherwise. Subhomoy Bhattacharjee has written in his Financial Express article explaining reasons why the markets and the retail investors are not gung-ho about PSU disinvestment anymore. He says:

There are two value propositions in a PSU stock. The first is the sovereign guarantee against their failure. There are no studies to pinpoint the percentage impact on the stock prices of such guarantee. For instance, of the price difference between L&T and BHEL, what owes itself to the sovereign guarantee? The attraction among the earlier set of retail investors was based on this guarantee. Each of the 49 PSU was, therefore, a blue chip by design.

But that picture may have changed for ever. With more than a hundred PSUs in the market expected before 2011 is over, every one will compete against the other and then against their peer in the private sector for the same investor pie.

Then the other value proposition in these stocks will come to the fore. Namely, the value of good management in each company. It is this difference that will now guide how well each of them will perform in the primary market and going forward in the secondary market too. This is a tall order. Except for some of the power sector companies, most of the PSUs are inefficiently managed. They are sitting on huge cash reserves, (HAL, BSNL, for instance) running a monopoly charter with high inventory costs that are billed to the state or the captive consumers (like PFC which borrows with government guarantee at lower costs but sells at market rates).

I concur with him when he says Sovereign Guarantee is no more an incentive as it used to be earlier, but performance of the company is. And when Sam Pitroda says that BSNL has about 100,000 redundant staff it is obvious that efficiency and performance are not in the picture anymore. So ironically the basics still matter for PSUs: performance and only performance will count in the long run and unless the investors think that management can deliver the goods they will not go in for PSU stocks in a BIG way.

Now, rather rhetorically, I repeat my charge against the Govt: 10-15% selling of stakes with FPOs will only give money to fund the dark hole of fiscal deficit. The need of the hour is to have a management and mindset change to make PSUs compete with private sector, but I am criticized as patronaging “crony” capitalism when I say so.

Disinvestment in Indian context

Disinvestment is a milder word for Privatization of public sector enterprises in India. For some, this word has become synonymous with reforms. When the FM Mr. Pranab Mukherjee will raise to present the Indian budget for 2010-11, Disinvestment will figure in it for sure – But does this mean will it be a dosage of reforms? May be or may be not. I have thought about this many times and the eve before budget is the best time to pen down my thoughts!

When India went the reforms way in 1991, the reason was pressure from IMF and not to actually encourage/promote private sector participation, though that was a beneficial (IMO) side-effect. Economic Reforms took some sort of a shape under the 2nd NDA Govt. The following is a quote from Wiki: (Source):

Vajpayee’s administration earned the ire of many unionized workers groups and government workers for their aggressive campaign to privatize government owned corporations. Vajpayee promoted pro-business, free market reforms to reinvigorate India’s economic transformation and expansion that were started by former PM Narasimha Rao but stalled after 1996 due to unstable governments and the 1997 Asian financial crisis. Increased competitiveness, extra funding and support for the information technology and high-tech industries, improvements in infrastructure, deregulation of trade, investments and corporate laws – all increased foreign capital investment and set in motion an economic expansion. These couple of years of reform however were accompanied by infighting in the administration and confusion regarding the direction of government.

So, a lack of direction on Disinvestment has been a major issue ever since then and it is sad that we are not any bit wiser today after about 6 years of UPA rule. The Govt. remembers disinvestment when there’s a huge deficit which is deterring growth – so the easy way out is to sell “Family silver” as our Commie friends say. Consider the recent privatization of NTPC and other Govt. companies which yielded about 3.5b$. The FPO had lukewarm response from Retail investors. Arun Shourie summarized it superbly in an interview with MoneyControl (Source):

I sincerely hope that the programme will succeed because the government’s finances over the last few years were managed in such a way that deficits have reached proportions which cannot but lead to great problems for the country. We are seeing inflation, we are seeing the pressure on interest rates. So I sincerely hope that the programme will succeed. I am as disappointed as you are about the retail response. NTPC is one of our strongest companies.

I personally believe that power will be the next telecom sector in the country in leading growth and the reason why this probably has happened though we should hope that in this or in subsequent issues retail investors will get confidence and buy these, the reason why this disappointing response has happened is probably that this has been seen not as part of a reform programme of the government but as a measure of government offloading its equity only to raise resources to plug-in the deficit. That is always a reason why the retail investors do not get confidence.

What we need here, as Shourie had pointed out, is a statement of intent from Govt. that it is genuinely interested to improve the quality of public sector operations by actively involving the private sector. Not only would this give a fillip to the private sector by providing it with new opportunities, it would also serve to improve the the operational efficiency of these public enterprises. Above all the proceeds from this exercise would be credited to the National Investment Fund which could be used for better purposes than funding the black hole of fiscal deficit. This may sound very idealistic, but this is the need of the hour and with the kind of mandate UPA has for this term, it would be fantastic if the Govt. pushes through with Disinvestment for the right purposes.

P.S.: But, how will the fiscal deficit be brought down to the 3% levels as indicated in the FRBM act. I don’t think the FM will be addressing it concretely tomorrow. But most commentators and analysts have aired their views on taming the deficit and I’ll write about them in the next post.

The three questions for BJP!

Here, Rajesh Jain asks 3 questions whose answers would help the BJP charter a future course. I have provided my inputs on his blog and am now replicating those in this blog post.

1. What are the 2-3 big issues that will present the most challenges and opportunities for India?

(a) Scaling up infrastructure in the areas of Health, Education, Power sector and mass transportation would present a huge challenge in India.

(b) The large number of people working in unorganized sectors would hamper reforms in the labour sector and rationalizing taxes. India also needs to address the imbalances in its workforce. For example 50% people working in agriculture account for only 17% of the GDP while 34% of workforce working the services sector account for a much larger 60% of the GDP. This issue has to be addressed while keeping the supply side in agriculture sector strong ensuring self sufficiency and lower food prices.

(c) India’s foreign policy needs to be far more assertive specially vis-a-vis Asia. It is time India asserted itself as a regional superpower by having far more meaningful relations with Indonesia, Vietnam, Malaysia and other South East Asian countries which are culturally closer to India. Japan and South Korea would also be natural partners. They could manufacture their goods in India which could be shipped to South East Asia. This would also keep China on its toes.

Which ideas/issues would resonate most with the youth in this decade — those issues which will fire them up to actively work towards their own and India’s development?

(a) Establish numerous tie-ups with reputed educational institutions overseas to offer quality courses across different areas (Engineering, arts, medicine, economics) in India with emphasis on R&D. This should make the issue of reservations in Education irrelevant. Also this would ensure Indian talent stays on shore. Promoting entrepreneurship would enable the youth to be more aspirational and help in nation building by offering indigenous solutions.

(b) High quality Government services which are hassle free and devoid of red-tapism and corruption. This could also be debated in the context of privatization and disinvestment.

Which matters should we focus on in the next 10 years? These should be achievable and must be important for India’s development?

(a) Promoting an aspirational society while promoting the values of nationalism, liberty and kindness. Putting it in the other way, the discourse has to be turned away from the concepts of “Aam Aadmi” and “masses” to “Khaas Aadmi” meaning individuals in society can have a dream and work towards scaling it unrestricted.

(b) Social sector schemes/cons like loan waivers and NREGA have to repackaged to add economic value to the system. This would give a lever to tackle inflation as well because we are not pumping money into a project which adds nothing making the money worthless.

Alternative proposals for governance in India – A view from Right of Center

I have always been attracted to the ideas of liberalization, de-regulation, lean and transparent Government which is intent on constant innovation, reform and improving productivity of the nation as a whole. But when we see political outfits in India, there is no political party that even comes close to this agenda. But there is another factual consideration in Indian polity – It is a near to impossible to build a party from scratch, which is based on the above principles, that can fight elections and bring material changes to the system. Parties such as Lok Satta and Lok Paritran are cases in point, not to discourage them. So, the percentage option would be to influence existing political parties to revamp their think-tanks and ideologies to build a better stronger India which stands for Liberty and Equality, driven by aspirations of its people and claims its rightful place in the league of nations (which is often said rhetorically).

On the national scene in India, we predominantly have the INC and for the past 2+ decades the BJP. I find the INC too distant from this idelology and I dont want to go into the obvious reasons, but BJP turns out to be a mixed bag. On one hand RSS which is the BJP’s ideological fountainhead supports Swadeshi economics, the Governments of BJP ruled states and the erswhile NDA Government pursued a slightly Right of Center Economic agenda. Disinvestment of public sector companies to promote private participation, Public Private Partnerships based on B-O-T model, fiscal prudence, muscular foreign policy and tried but failed labour reforms are examples.

But, they haven’t given a clear indication of their positions on various aspects of Governance. Apart from the odd statement by Narendra Modi & Nitin Gadkari such as “Minimum Government, Maximum Governance”, in general they have never talked about reducing Govt. Size, reducing Govt. spending, promoting an aspirational society and a slightly bolder approach to reservations. Also their alleged association with fringe extreme elements overshadows whatever good work they have done. For instance Varun Gandhi’s episode overrided their IT policy and Infrastructure policy proposals (which were truly interesting) released as a part of their manifesto. A bad image in National media has turned the urban voter against them. Add to this rising dynastic politics, involvement of BJP leaders in corruption cases and lack of discipline have further dented the party. Top that up with near-Zero presence in 5 major states in India and the results are there for everyone to see.

Inspite of these major problems there are folks like this and this , who have tried to influence BJP, although in a very small way, to be a responsible Right-Of-Center party of India. This effort is first of its kind in India where a group of people are positively trying to influence a political party to redefine itself. Friends of BJP launched in 2009 specifically for the election campaign was a similar effort that did not work. There is a talk of reviving it and getting it a recognition within the party fora. It would be great if this can indeed happen because BJP can then get inputs from diverse group of professionals and intellectuals – these inputs can be thought upon and absorbed by the party’s think-tank if found palatable. Whether this ambitious plan would work is anybody’s guess. Such groups can also act as a watchdog and could raise objections if they have a representation inside the party. IMHO, I feel that as someone who is looking for alternatives in Indian polity, I could also contribute to this cause in whatever little way I can and from here-on, I wish to keep writing on this issue.

All said and done, its upto the party to carry these people/groups along and reposition itself as a strong and credible alternative to the incumbent.