What we learn from recent elections in India

In an extraordinary move one fine evening in November last year, Prime Minister Narendra Modi announced sudden withdrawal of 86% of India’s currency in circulation, in what he termed as a crackdown on black money. In a predominantly cash based economy like India, it was an unprecedented move and has no parallel anywhere in the world. While the last word on “notebandi” has not been said yet, several elections – both local bodies and states - since then confirm voters have not been averse to the action. This is in sharp contrast to what was shown incessantly on electronic media during those eventful days of acute currency shortages. Besides a verdict on demonetization, here are some takeaways from recent elections in the country not just in the five states that went to polls last month, but elsewhere as well.

Democracy is flourishing in India as voters demand performance & accountability

The mainstream media has no touch with reality. I wonder how they justify the crores they get as salary. For example, the sheer scale of BJP’s election victory in Uttar Pradesh is mindboggling. Yet, throughout the election campaign, the media painted a picture of a keen contest between the “UP ke ladke” Vs. Narendra Modi, with Mayawati’s BSP thrown in for some additional spice. The media narrative portrayed a largely equal fight, or occasionally an edge to the BJP depending on whom you believed. As if to justify prior coverage, the exit polls also reflected similar trends, with BJP a bit ahead of the rest but not too much. But it all fell flat when the results were declared. This is true not just for U.P. but elsewhere as well. Recall that the non-stop coverage for more than a month of the poor “suffering” in bank queues (some even died!) also turned out to be top class fiction. Clearly, if you are watching too much TV, especially the newsroom debates & “expert” analyses, you are wasting your time. Go, get a life.

There is no substitute for hard work. Narendra Modi’s charisma sits on top of several decades of solid ground level work by RSS & several of its affiliate organizations in the remotest corners of the country. You cannot build a sustainable electoral model without some real groundwork & voter connect at the grassroots. Mulayam Singh Yadav built Samajwadi Party from scratch. He has spent his whole life in the rough & tumble of U.P.’s realpolitik, connecting with people, building relations and nurturing the party to what it is. In the 2012 U.P. State Assembly elections, people voted for Samajwadi Party with “Netaji” in mind. But it was Akhilesh who was made the CM. You can inherit party posts but not the personal touch & rapport with the people. You have to build that yourself. Governing a State & showcasing a couple of projects is one thing, having a grassroots level connect with the people that makes them vote for you again & again is another. It is no surprise that cutting across party lines, one can see that most second generation politicians are failures.

There are no shortcuts to success, no substitute for real groundwork and people connect

Leadership matters. In Uttar Pradesh, Narendra Modi staked his personal reputation at risk and led the battle from the front. There is no doubt that BJP could not have pulled off such a huge success if Modi had stayed away from campaigning or only made token appearances. Ideology has ceased to matter. Choosing your party is no longer a question of ideology you subscribe to. All parties call themselves socialist and secular. Nobody reads party manifestos. Even freebies have ceased to matter, if only because everyone promises a bountiful of them, so the factor gets neutralized. People want forceful, decisive leadership.

There are no vote banks. The “secular” narrative is dead. Sixty five percent of India’s population is below the age of 35. The median age of an Indian is 27.6 years. The generation which saw Partition has passed away. To a large section of today’s voters, even the Ayodhya demolition is “history”. And voters are no longer swayed by what happened in history. The BJP has successfully shed its “communal” label. Even Muslim attitudes towards BJP are changing. But like an Ostrich who buries its head in the sand, the old generation “secular” politicians - most of them past their retirement age - refuse to see this reality. Even the caste factor is overrated. Just because one can generate caste-wise statistics and blabber some nonsense, it does not follow that voters who cast their vote ‘vote their caste’. Even where a correlation exists between the caste of the electorate & the elected, it does not prove causation. I have not seen a single survey or opinion poll which asked the voters why they voted for a candidate they did, and majority of the voters pointed to caste as the driving factor. No wonder sand it slipping from under the feet of parties who thrived on such narrow agendas. In an article three years back, I called such parties “Dodos of Indian Politics”.  

Voters have become demanding. Television & radio has reached every home. Internet penetration is increasing rapidly. Literacy has improved significantly over the years. People are much more aware of what’s happening in & around them. You just can’t take them for a ride anymore with empty promises. The voters have become demanding, and politicians who fail to deliver get thrown out. This is repeatedly getting proved one election after another, be it in Nitish Kumar retaining Bihar, or the Akalis losing Punjab. 

Despite its recent spate of successes, even BJP cannot rest on its laurels. It will have to deliver genuine improvements to the lives of the people. Otherwise the same fate awaits them.

Three myths about the "growth" debate

If one reads the country’s pink press or listens to the ‘experts’ appearing on television regularly, one might wonder why, with so many brains around to solve the country's problems, the problems are still there and not going away. The answer for this is not difficult to see. Given below are three common myths that surround the debate, making problem solving exercise an exercise in futility:

Myth # 1: GDP growth is utopia

No other economic statistic is probably as abused as “GDP growth”. Very few understand what (GDP) ‘growth’ is, and even fewer the limitations of this number. That is precisely why, probably, every politician worth his salt finds it a handy tool to misuse. GDP, or Gross Domestic Product, is the sum total of all output of final goods and services produced in the country in a given period. GDP growth then, is the increase in this output, adjusted for inflation. GDP growth shows how much more the country has produced compared to a previous period, usually the year. All this is fine. 

However, it is rarely discussed that:

What matters is not the absolute GDP growth but per capita growth, especially when comparing GDP figures between two different countries. For example, U.S. GDP grew by 2.78 % between 2011 and 2012, while India’s GDP grew at 4.99 %, faster than that of the U.S. However, India’s per capita GDP actually fell from $ 1,534 in 2011 to $ 1,489 in 2012 while U.S.’ per capita GDP grew from $ 48,113 to $ 49,965. (Source: World Bank). Indians were thus worse off than they were the previous year. All talk about India being “…one of the fastest growing economies in the world…” is thus meaningless, because India's per capita figures almost invariably turn out to be much worse.

Then there are other factors to be considered such as the composition of this GDP growth. In India, government buys food grains every year at higher and higher prices through an administrative fiat (MSP) with tax payer money which then rots in government godowns. This production counts as GDP, but it never reaches the consumer. With his remaining money, the tax payer ends up buying the remaining foodgrains in the open market at inflated prices, because so much of legitimate supply has gone out of market.

In a healthy economy, higher GDP figure should be supported by two other characteristics – increase in productivity and increase in job creation. India’s average GDP growth between 1999-00 to 2004-05 was 5.76 % and between 2004-05 and 2009-10 was 8.73 %. But the number of jobs created between 1999-00 to 2004-05 was 60.70 million whereas between 2004-05 to 2009-10 was just 2.72 million (Source: Planning Commission).

GDP growth is thus just a statistic that needs to be taken with a fistful of salt. GDP growth is an outcome of a healthy economy, but it does not necessarily constitute proof of one.

Myth # 2: The growth – inflation paradox

This probably is the biggest myth of them all – that the Central Banks are perpetually facing a Catch–22 situation: if rates are reduced (or liquidity increased, which has the effect of lowering rates) to propel growth, inflation flares up and if rates are raised (or liquidity tightened) to control inflation, growth suffers.

Let’s get this straight here – Bank lending and borrowing (i.e. deposit) rates move in tandem. If you want lending rates to come down, deposit rates need to be lowered too. And deposit rates cannot be delinked from inflation rate. Interest is the time value of money. The way an economy grows is like this: interest rates get high enough to encourage savings; this encourages people to save more. The banks (and others such as insurance & pension funds etc) become flush with money. They then compete among themselves to lend, which brings down lending rates. This in turn encourages more consumption and capital investment, promoting growth.

Lower interest rates are thus a result of increased availability of capital, which in turn is a result of increased savings, which in turn is a result of higher income and low inflation! That’s how low interest rate induces growth. All the economies which have shown high growth rates in the past, such as Singapore or China or even India have done so on the back of a high savings rate. Countries which tried to grow through excess leveraging, such as those in Europe or the U.S. are facing problems today.

What happens if inflation rate is higher than the rates of return savers get (the so-called negative real interest rate)? If inflation is high, disposable incomes fall; inducing people to cut down on discretionary consumption. There is also a flight of capital to hard assets and speculative investments, causing asset price bubbles.

Myth # 3: Central Banks can cure all economic ills

The media pays too much attention to Central Bank actions. The Central Bank can only do this much, and nothing more. It has the mandate to maintain the value of the currency, to oversee (but not to run) the banks and to run the credit & payment system in the country. The fiscal policy, the trade policy, the industrial policy, the law and order, the availability of manpower and requisite skill sets, the legal framework, the ease of doing business – there are several factors that impact how the economy performs. Most of these are under government influence. Most of the times, governments make things worse, in the guise of ‘regulating’ them. You just can’t expect the Central Bank to have a magic wand which will make all sins of the government disappear and power the economy full throttle.

In a 2012 World Bank ranking of 185 countries on “Ease of Doing Business", India ranked 132^nd. The rankings rate countries on parameters such as starting a business, dealing with construction permits and enforcing contracts. Here is the latest example - a bill introduced in Indian Parliament to “regulate” street vendors will soon make it impossible for anyone to even sell peanuts on the streets. And we expect Central Bank to promote growth!

When you bust these myths, most of what appears in the pink press or the business channels on how to promote growth will cease to make any sense.

Why RBI needs to RAISE interest rates

On 16^th January 2013, speaking at an outreach programme of the Reserve Bank of India (RBI) at Lalpur Karauta village in the state of Uttar Pradesh, India, Governor Dr. D. Subbarao said this: "If you see the currency note, it is printed on it that 'I promise to pay the bearer the sum of Rs 100' and it has my signature as the RBI Governor. What does the promise and signature mean? It means that the RBI will control inflation and maintain its purchasing power". It is another matter that the stream of journalists present did not report this very important statement (see here, for example) when they filed their reports on the event. Either they did not really understand what the Governor said, or did not like what they heard.

If you read the pink press regularly, or watch one of those stock market channels masquerading as ‘business’ channels, you might be forgiven to think that the RBI Governor sits in his office holding a magic wand in his hand. All he needs to do is to waive the wand lower, and lo! All the country’s economic problems would be solved! This magic wand, the press might tell you, is called The Interest Rate. So much is the pressure from interested politicians, crony capitalists and the media on the Central Bank to reduce rates, that one would be inclined to believe that that’s all that is there to managing an economy.

Subbarao has a promise to keep - to maintain the purchasing power of our money

The truth however, is not so simple. When it comes to the interest rates, the mainstream media is not just wrong, it is preaching exactly the opposite. Let us therefore be clear – beginning to reduce interest rates right now will take the country on the path of ruin.

Let us understand why I am saying interest rates need to be raised.

Inflation is still running frighteningly high. As per the latest figures, Consumer Price inflation (CPI) is at 10.56 % per annum. Food prices have increased by 13.04 %, with several key ingredients such as oils & fats (16.73 %), vegetables (25.71 %), sugar (13.55 %) rising at a much faster pace. Being official figures, even these figures may be grossly understated. Prices of several items have as much as doubled in the past year. The index does not even include the dramatic increase in the prices of services like transport  and education.

Bank lending is already growing faster than deposits. For deposits to catch up, interest rates need to be raised. RBI has pointed this out in the last mid-quarter monetary policy review on 18^th December 2012. In December, borrowings from RBI’s LAF (Liquidity Adjustment Facility) reached highest level for the year at Rs.1.70 lakh crore and are still running high at almost Rs. 80,000 - 1 lakh crore this month (see this or  this). To put it simply, banks as a whole are lending more than what their deposit base justifies.

The high rate of inflation and the shortage of deposits with banks clearly point to a need to raise, and not lower interest rates. Even the slight dip in wholesale inflation rate (WPI) from 7.24 % to 7.18 % that is being bandied around is far higher than RBI's 'comfort level' of 4 - 5 %.

Lowering interest rates ignores the interests of savers completely; it presupposes that borrowers are the only ones interested in interest rates. Lowering interest rates punishes savers, rewards borrowers and encourages profligacy. An economy should be built on solid foundations of high savings rate, and not on high borrowings. If savings are high, plenty of money will be available for productive investment, and this in turn will cause rates to move lower. Low interest rates are thus an outcome of a healthy economy, lowering rates artificially cannot automatically lead to a healthy economy.

In its Financial Stability Report released last month, the RBI has stated that low real interest rates are causing diversion of savings to hard assets like property and gold. Lowering rates further will worsen this trend.

Raising rates strengthens the currency, something India badly needs to do. India’s foreign exchange problems are well known and need not be elaborated here.  At a time when the country is trying to attract foreign capital by opening up new sectors for foreign investment, what justifies discouraging domestic savings?

Lowering interest rates now will worsen these trends, causing a further rise in inflation, erosion of savings, flight of deposits from the banking system and weakening the currency.

Vested interest and sheer ignorance promotes the myth that somehow low interest rates are  ‘good’ and high rates ‘evil’. The debate in the mainstream media is so one-sided that the merits of raising the rates or keeping them high are not even discussed. The bogey of low industrial growth and high Non-Performing Assets (NPAs) is raised every time to oppose raising or justify lowering the rates. But industrial growth has been slow mainly because inflation is eating away into people’s savings, leaving people with little money to spend on other things. High NPAs have been a result of various factors like the policy mess (e.g. power sector), poor business plans (e.g. aviation) or simply, in the words of the Finance Minister himself, “poor lending decisions”, not to mention willful defaults and corruption (e.g. real estate). I have not come across any instance which points to high interest rates as the primary cause of an asset turning bad. The rates simply aren’t that high.  

If high interest rates are not a cause of the problem, lowering them cannot be the solution as well.

The villagers of Lalpur Karuata, like the rest of us, will soon know whether Subbarao keeps his promise.

How long can you fast? The remarkable story of Irom Sharmila Chanu

With Anna Hazare giving a new lease of life to Gandhigiri, fasting as a means of peaceful protest is back in vogue. But how long can one fast? What happens if one continues to fast but the demands are not met by the powers that be? Read the remarkable story of Irom Sharmila Chanu of Manipur, who has been on a hunger strike since 3^rd November 2000 and has not taken any solid food or water since then. It’s been more than 10 years now.

Manipur has been fighting insurgency since the 1970s. The state was granted autonomy when the British left India in 1947, but it merged with India two years later. But many believe that the treaty was forced upon their king. This, and the continued neglect of the North Eastern states by the politicians in Delhi has bred resentment among its population towards New Delhi’s rule, leading to insurgency and separatist movements.

On 2^nd November, 2000, ten civilians were allegedly shot and killed by the Assam Rifles, one of the Indian Paramilitary forces operating in the state, while waiting at a bus stop in the town of Malom. The incident later came to be known as the "Malom Massacre". The draconian power granted to the armed forces under the Armed Forces Special Powers Act (AFSPA), 1958, was blamed for the attack. The Act provides powers to the Armed forces to detain any civilian on mere suspicion of being a rebel, or to search, arrest or use force against civilians. 

The next day, Sharmila, then 28 years old, started her indefinite fast demanding repeal of the AFSPA. She has been fasting since then and has not taken any solid food or water for more than ten years.

Sharmila has been adamant that she will continue with her hunger strike until the AFSPA has been repealed. Under Indian Law, she has been charged with “attempt to commit suicide’ which is unlawful under section 309 of the Indian Penal Code and carries a maximum punishment of ‘simple imprisonment’ of 1 year. She has been arrested several times in the past one decade, held for a year, released and then arrested again. Under arrest, she has been kept alive by a process called “nasogastric intubation”, i.e. force feeding her a mixture of liquefied carbohydrates and proteins through a nasal tube, three times a day.

It’s been more than ten years now. Her struggle continues, unfortunately largely ignored by the mainstream media. It is said she spends her time reading and writing poetry.

You can read more details about her struggle here or here or here. 

(Note: Images may be copyrights of their respective owners)

Who is Robert Vadra?

Priyanka’s husband, of course. But that is not what I am asking.

I was curious to see that a couple of days back, The Times of India carried a half page interview of Robert Vadra. For a man married into the India’s First Family, Robert has maintained a surprisingly low profile, avoiding the glare of the media that rest of the Gandhi family members have constantly been under. In the above mentioned interview, Robert Vadra comes out as a soft spoken businessman, running a small business exporting costume jewellery and handicrafts to Europe and elsewhere. He refuses to give any figures on the size of his business, but claims he employs 38 people. He also comes out as a fitness freak and a sports enthusiast, a passion he says he shares with brother in law Rahul. He claims to have never used his position as Priyanka’s husband for his personal and business’ benefit and downplays the frisking controversy since it is applicable ‘only when he is travelling with Priyanka’. (For the uninitiated, Robert Vadra has been exempted from frisking at Delhi’s Indira Gandhi International Airport, a privilege available only to a select few VVVIPs like the President, Prime Minister, Chief Justice of Supreme Court, Foreign Diplomats etc. ) He also claims he can win an election ‘from anywhere’ and does not rule out joining politics in future. But at present, he is happy and content running his business and spending time with his family. Click here here for the full interview.

For a man who has always been shy of the media, I do not know what the sudden provocation of giving this interview was. But the very absence of media glare on Robert should, in my opinion raise eyebrows. For a media that has often been accused of sensationalizing trivial things, Robert’s background provides enough ammunition to provide full time employment to an army of journalists.

• Robert was born to a Rajinder and Maureen. Rajinder belonged to Moradabad in U.P. while Maureen was of Scottish origin, and the family was originally called Wadhera. It is not known when and why the surname changed to Vadra.
• It is not clear whether Robert is a Christian or a Hindu. His marriage to Priyanka was carried out with Hindu rituals. But the first names of the Vadra siblings (Robert, his brother Richard and sister Michelle indicate they may have taken the religion of their mother)
• Robert was not on good terms with his family, and had disowned his father and his brother legally through a press release. He alleged they tried to misuse his name and position (as Priyanka’s husband) to seek undue favours from third parties. The claim was vehemently denied by his father who challenged him to bring even one witness to corroborate his allegations.
• In 2001, his sister Michelle died in a car accident.
• In 2003, his brother Richard was found dead in his room.
• In April 2009, just a few days before the country’s General elections, his father was found dead hanging down from a ceiling fan. His death was declared as a suicide. Surprisingly, the Indian media, so ever eager to “generate” news out of trivial nothings, completely supressed this news and never reported it. So much for a free press! Was there something that his father knew?

Even the interview mentioned above skirts all the inconvenient questions and only seeks to ask what Robert would like to answer. To me, the very secrecy surrounding Robert sounds suspicious. Will the truth ever come out?

Good news

Over the last few weeks, I have been consciously searching for ‘good news’ in the country’s mainstream media. I don’t see much of TV, but I do read newspapers and browse a lot of news related websites. I am surprised how difficult it has become to find ‘good news’ these days.

Open the newspaper and see what is making the news today – corruption charges, murder, terrorist attacks, thefts, protests, strikes, rape, dacoity, frauds, accidents and so on. Downright depressing. 

Then, there is a second category of news, which can be classified either as good or as bad – depending on your point of view. A corrupt politician is exposed. A gang of dacoits arrested.  A child rapist sentenced to life imprisonment. I don’t know whether this should be classified as good news or bad. Though a gang of dacoits being arrested is good news, the fact that dacoities happen is not. We know that for every one thief who is arrested, there are nine others who go scot free. For every one corrupt politician who gets exposed, there are nine others (or ninety-nine?) who never get caught. Here, the glass is either half full or half empty, depending on your point of view.

These types of news form a large chunk of the front page and the first few pages of the daily newspapers. This is not what I am looking for.

There is a third type of news which I call the ‘neutral’ news. Plain and simple reporting of events or objects. A foreign delegation visits our country. A sports event takes place in which one side wins and the other side loses. The Election Commission announces dates of a particular election. A book fair is organised in the city. A local festival is celebrated by the people. And so on and so forth. These happen in the normal course of one’s day to day routine. Nothing great about it. This is not what I am looking for either.

I am looking for ‘good news’ in its purest form.  Something which truly radiates positive energy.

More than four hundred volunteers have agreed to contribute four hours a week to help the traffic police manage the city’s maddening traffic (see the blog a few days ago). Not only will they perform this free, they will in fact spend money out of their own pockets to take training, buy badges and so on.

A hospital in South India performs free Angioplasties on 175 poor and needy people. An angioplasty costs Rs.2 lacs. For the paan-wallah and rickshaw-wallah who benefitted out of this scheme, it is like getting a new lease of life. They would never have been able to afford an angioplasty at full cost.

Residents of a locality in Malad celebrate Dussera by sweeping up the entire locality and making it spic and span.

This is the type of news I am looking for. Good news in its purest form. Surprising how difficult it has become to find it. Try it out yourself.