Category: Narendra Modi

Optics All The Way: Budget 2017 has brought to fore the astute lawyer-politician in Arun Jaitley

February 5, 2017
India’s finance minister Arun Jaitley has lived up to his credentials as a lawyer-politician adroitly: he has presented a budget for 2017-18 that pleases everybody but satisfies very few.

The capital markets investor class, including the foreign portfolio investor (FPI), is certainly happy. The movement of the stock market index reflected joy at being left alone: at closing time, the 30-share benchmark sensitive index was up 485 points in a relief rally. Investors were pleased that a rumoured restructuring of long-term capital gains tax was avoided. FPIs, who bring liquidity to India’s shallow markets, were spared additional tax blushes under something called the “indirect transfer provision,” which required tax to be paid on transfer of shares overseas if the underlying assets are located in India.
In the end, budget 2017 seems to be more about being seen to be doing the right thing rather than doing it. Jaitley’s thrust can be summed up in his own words: “My overall approach…has been to spend more in rural areas, infrastructure and poverty alleviation and yet maintain the best standards of fiscal prudence. I have also kept in mind the need to continue with economic reforms, promote higher investments and accelerate growth.”
This requires walking a fine line and Jaitley has husbanded all the political smarts he could muster.

Delicately balanced

On one side, the impending state assembly elections (in Uttar Pradesh, Punjab, Goa, Manipur and Uttarakhand) which begin on Saturday (Feb. 04) was bound to cast a long shadow on his plans. On the other side, Jaitley had to present a political budget without breaching the election commission’s restrictions.
Jaitley also needed lots of political nous since the budget had to be drafted in the backdrop of some momentous changes: demonetisation (which has dealt a severe demand and supply shock to the economy), the planned move to goods and services tax (GST), political developments in leading developed countries which could lead to severe economic consequences for India and other emerging economies. In addition, the fiscal responsibility and budget management committee’s report tied his hands by advocating fiscal prudence, barring exceptional situations.
On sum, though, there are a lot of announcements and political grand-standing but little by way of on-the-ground impact. For example, total expenditure planned for 2017-18 is up only 6.57% over the Rs 20,14,407 crore actually spent during 2016-17. That barely covers the rate of inflation. What’s even more disappointing, capital expenditure is budgeted to go up by only 10.7%. The country needs public expenditure to kickstart economic growth, especially in the absence of any private sector investment. Strangely, even though Jaitley has acknowledged this in his budget speech, he has failed to walk the talk.
Revenue could be a legitimate constraint. Tax revenues are expected to grow by only 12.7%, while non-tax revenues are actually budgeted to drop. Total revenue, including capital receipts, is expected to rise only 9.7%. One reason for the conservative estimates could be the expected shift to GST from July. The demand compression arising out of demonetisation could be another reason.

Political imperatives

Despite these limitations, the electoral imperative seems to have forced Jaitley to make numerous announcements for farmers, rural areas and allied sectors. In this, Jaitley has chosen to follow the footsteps of his predecessors by announcing grand schemes and allocating large sums. For example, he announced a Rs10 lakh crore agricultural credit target, against Rs9 lakh crore in 2016-17.
It’s curious that successive finance ministers chose to make this proud proclamation in the budget document when the money will actually be lent by various agri-lending agencies, such as the National Bank for Agriculture and Rural Development. There’s another strange twist: while the government promises to bear the interest subsidy on these concessional loans, the money kept aside for meeting the interest subsidy bill remains unchanged from last year. If the loan volume is likely to go up by Rs1 lakh crore, surely the subsidy element should also rise correspondingly?
Jaitley’s made another strange claim: he maintained that the pace of construction of rural roads under the Pradhan Mantri Gram Sadak Yojana had reached 133 km per day during 2016-17. This fact sits uneasily with roads minister Nitin Gadkari’s admission a couple of months ago that his ministry was unable to meet the highway construction target of 40km every day.
The political framework also probably stayed the finance minister’s hand from slashing corporate tax rates further, as had been promised in last year’s budget. In a year when demonetisation has affected millions of livelihoods and the ruling Bharatiya Janata Party wants to win Uttar Pradesh elections, the optics of helping large corporates could be a recipe for electoral hara-kiri.
He has instead cut tax rates for micro, small, and medium-scale enterprises with annual turnover up to Rs50 crore. His contention: their effective tax rate is higher than large companies and it is these units which actually create employment at the grass-roots level.
Arun Jaitley’s budget for 2017-18 pushes the political messaging of demonetisation further. He has painted a multi-hued picture that appeals to the stock market investor, because a rising stock index is often mistaken for economic health. His brushstrokes also strive to attract voters in various states by not only promising employment and income opportunities but also by painting the government as pro-disenfranchised and anti-privileged.

The above article was published in http://www.qz.com on February 2, 2017, and can also be read here

Demonetisation And Budgets: All In The Mind

January 11, 2017

Arun Jaitley will soon be presenting the 2017-18 budget and his well-laid plans may have to incorporate demonetisation-induced changes

It’s 690 seats this year; another 964 seats are up for grabs next year, with the general election to follow in 2019. This inescapable political imperative will weigh on finance minister Arun Jaitley’s mind when he drafts India’s economic policy. The battle for occupying popular mindspace over the past two months is now telescoping into a two-year battle. And if the vast majority of Indians feel confounded after Prime Minister Narendra Modi’s surgical excision of 86% of currency, they shouldn’t despair: They are in the distinguished company of Jaitley who, presumably, is equally disconcerted.
Jaitley will soon be presenting the 2017-18 budget and his well-laid plans may have to incorporate demonetisation-induced changes, over and above those included for introducing the goods and services tax (GST) system. What’s worse, with the GST start likely to be postponed, revenue projections may now have to be recast along traditional lines. Two huge changes in three months is more than just a rude disruption.
Two other elements add to the confusion. One, the railway budget will be merged with the Union budget this year in a meaningful break from a meaningless tradition. Also, the traditional expenditure reporting format under the broad heads of Plan and non-Plan expenditure will be jettisoned.
File photo of Finance Minister Arun Jaitley; Photo courtesy: Mint  
Standing for a moment in Jaitley’s shoes, what’s likely to be more worrying is how the economic slowdown affects revenue growth and how that shapes spending plans—especially committed social sector or infrastructure expenditure—that cannot be trimmed, leave alone eliminated. Jaitley has already promised higher government pump-priming to boost economic growth. Many new variables have cropped up in the meantime, further skewing the math. Modi contributed gamely during his 31 December speech with promises to increase social spending under both new and old schemes.
For example, new interest subventions on small housing loans and farm loans or increases in the number of rural houses built for the poor under the Pradhan Mantri Awas Yojana are some of the schemes which might expand both capital and revenue expenditure bills for 2017-18. It is clear that Jaitley has little option in slashing the outlay for social sector schemes, especially when demonetisation has eroded rural incomes and the ruling Bharatiya Janata Party is unable to dismount the election treadmill. Apart from state assembly elections for Uttar Pradesh, Punjab, Goa, Uttarakhand and Manipur in less than a month, next year will see elections in Tripura, Rajasthan, Madhya Pradesh, Karnataka, Chhattisgarh, Nagaland, Mizoram and Meghalaya.
With the political economy constraining deep spending cuts—at the most, outlays might be shuffled around under different schemes—revenue generation becomes imperative for meeting many of the grand spending plans. This is where rubber hits tarmac.
The demonetisation narrative focused on cornering tax evaders and, through legislative amendments, forcing assessees depositing unreported incomes to pay higher penal rates. This would require enhanced tax scrutiny and inevitably involve some element of persecution. But by stating that demonetisation was launched to punish currency hoarders, it subjected the majority to widespread suffering for the misdemeanours of a few. The messaging was subsequently imbued with nationalist overtones and repurposed to focus on moving India to a less cash economy.
Enter the good cop: News reports claimed that Jaitley had hinted at lower tax rates in a meeting with tax officers, citing how similar attempts earlier had met with success. News leaks from unidentified finance ministry sources also made similar claims.
Jaitley later seemed to deny his statement without actually denying it. There’s no text of Jaitley’s speech; only a summary is available, which has him stating there was an urgent need for a change of mindset: “India has to move towards a mindset of voluntary compliance…payment of legitimate taxes should be considered as part of the process and nobody should think that tax evasion is acceptable.”
This is where things get muddied up. By using the term “mindset”, Jaitley pivots seamlessly into the arcane world of behavioural economics. It is reassuring to note that Jaitley recognizes the importance of mindset in correcting tax compliance behaviour. But his public musings betray a contradiction. Initiating mindset change is a long-term project which involves altering social norms using a combination of psychological and social forces. The post-demonetisation regime instead uses a carrot-and-stick approach: simultaneously offering incentives (aka the Laffer curve) and disincentives (penalties).
The World Bank’s World Development Report 2015—titled “Mind, Society And Behavior”—states clearly that penalties or incentives have failed to improve tax compliance across the world. The UK government’s behavioural insights team, also known as the “nudge unit”, claims to have used behavioural sciences successfully to improve tax compliance in the UK and other countries. Jaitley will do well to remember that like liquor prohibition failed to stem alcoholism and related social problems, a one-time demonetization (or a subsequent penal regime) might not be enough to raise tax revenue on a sustainable basis. While the impact of behavioural sciences in influencing policy outcomes is still imprecise, one thing is clear: lasting changes in social norms require long-term investments.

The above article was first published in Mint newspaper on January 11 and can also be read here

Unintended Consequences of Demonetisation

January 2, 2017

The demonetisation scheme was launched without the govt thinking through consequences, hardships or logistical complexities of such an undertaking

Indian businesses have spawned some unique management practices. In his book When The Penny Drops: Learning What’s Not Taught former Tata Sons executive director R. Gopalakrishnan credits former ICICI chairman N. Vaghul with coining the term “Mafa”. Among the many variants of the acronym, the one that works best for India is “Mistaking Action for Achievement”.
Mafa seems to be a unique Indian trait, found frequently in Indian organizations. Executives, keen to show initiative, are often found launching ill-conceived projects with little or negligible homework. Managements, it seems, are content to see senior executives bustling around launching one abortive project after another, rather than thinking through strategy, returns and risks. Introspection is considered a luxury, a sign of indolence; shoot first, ask questions later.
The demonetisation scheme is an appropriate example. The government launched the exercise without thinking through the consequences, the hardships or the logistical complexities of such a mammoth undertaking.
The daily, arbitrary changes in rules puts demonetisation squarely within the theatre of the absurd. 
But, more importantly, the project also has numerous unintended consequences. In 1936 American sociologist Robert K. Merton wrote a popular paper titled “The Unanticipated Consequences of Purposive Social Action“. The central idea of the theory is that policy action by government can often lead to undesirable outcomes, or unintended consequences, that were not part of the original plan.
The policy landscape is littered with numerous examples. Many commentators link the US government’s determined push to make affordable housing universally available with the 2008 mortgage-fuelled, trans-Atlantic financial crisis. Research shows tightening anti-money laundering rules could end up increasing costs for official remittance channels, forcing remitters to lapse back to unofficial channels. Government incentives in Brazil’s auto sector are said to have caused over-investment, lowered capacity utilization and eventually affected productivity, employment and incomes.
The Indian government’s “surgical strike” on currency notes also has unintended consequences. Here’s how.
Unintended consequence-I: One of the avowed motives behind the 8 November edict was to flush out bank notes hoarded by tax evaders. And while this might succeed somewhat, faulty implementation has given birth to another unintended consequence: re-incentivizing hoarding. A delay in re-monetizing the system, after having sucked out 86% of currency by value, has created an unplanned scarcity. Banks do not have adequate supply—in branches or in alternative channels—of either old Rs 50/100 notes or the new Rs 500. It has forced many economic agents to squirrel away notes. The shortage has acted like a massive shock to the economy. Consequently, instead of draining the swamp, the demonetisation process now threatens to turn it into a crocodile pit.
In a statement read out during the fifth bi-monthly monetary policy press conference on 7 December, Reserve Bank of India deputy governor R. Gandhi said: “The Reserve Bank and the Central Government note presses are working to their full capacities and all efforts are being made to reach the notes to every part of the country… We reiterate that there is adequate supply of notes and hoarding of notes helps nobody’s cause.” The statement clearly shows that the central bank is cognizant of hoarding, and daily news breaks of various raids and recovered currency notes also prove that demonetisation has actually re-ignited the basic hoarding instinct.
Unintended consequence-II: It is now patently clear that the government did not adequately plan for the aftershocks. The exercise has deprived people from retrieving their own money from what were considered fail-safe bank deposits. 
This has a severe unintended consequence: It can erode people’s trust in banks, which has taken years of hard work and perseverance to build. A democratically elected government’s unilateral diktat, increasing the distance between a depositor and her legitimate deposits, can act as a perverse incentive: people may henceforth shove a few banknotes under the mattress before surrendering the rest to banks. This behavioural pattern is hardwired in the Indian psyche, having survived decades of a command-and-control regime which were marked by severe scarcities. 
It is also natural risk mitigation to build buffers against future autarchic government decrees that might once again restrict access to legitimate savings. Nobody likes queueing up for hours to reclaim their own money. While there won’t be a stampede to exit the banking system (and in fact there may be more Jan-Dhan bank accounts opened over the next few years), the demonetisation move has definitely corroded, if only marginally, confidence in the banking network.
There is an apocryphal story about a government rule boomeranging during the Raj. Seeking to clean up snake-infested Delhi, the British rulers announced a bounty for every dead cobra. While genuine snake-catchers got busy, some ingenious Indian entrepreneurs got even busier: they started breeding cobras, killing them and collecting prize money. When the government got wind of this, they shut down the programme abruptly, forcing snake breeders to release their wards back into various parts of Delhi. Hopefully, demonetisation won’t leave behind too many creepy-crawlies.

The above article was first published in Mint newspaper on December 14, 2016. It can also be read here.

The Two-Step Trump Dance

November 21, 2016

It seems India-US ties will primarily be a two-track exercise: with one track chugging along smoothly and the other full of bumps and speed breakers

India has witnessed 16 years of progressively intensifying partnership with the US under the George W. Bush and Barack Obama presidencies. With Donald Trump moving into the White House soon, predictions about future India-US ties swing between hope and trepidation. Indeed, both sides may have to reset many existing markers in ongoing negotiations.

Everybody is trying to figure out Donald Trump the president versus Donald Trump the candidate. On the campaign trail he confused observers with his wildly oscillating undertakings. The scope for speculation is greater in his ramblings about India; he waxed effusive about India’s business opportunities but issued grim warnings about Indian software engineers in the next breath.
The question uppermost then is: Where does India figure in his plans? For one, Trump’s campaign arc has seen many flip-flops and this may well continue till he finds his feet in the Oval Office in January 2017; the post-victory phase has seen policy reversals, such as second thoughts on completely discarding Obamacare and scrapping the nuclear deal with Iran.
The clue to Trump’s India policy may lie in the document ‘Republican Platform 2016’: “India is our geopolitical ally and a strategic trading partner… We encourage the Indian government to permit expanded foreign investment and trade, the key to rising living standards for those left out of their country’s energetic economy. For all of India’s religious communities, we urge protection against violence and discrimination.”
Parsing the paragraph, it seems the India-US relationship will primarily be a two-track exercise, with one track chugging along smoothly and the other full of bumps and speed breakers. For instance, as the first sentence suggests, security and strategic ties will remain cordial. The second sentence points to the craters: unfulfilled trade and investment demands. In short, it’s business as usual.
The first reset button, though, will have to be pressed by Prime Minister Narendra Modi. He assiduously built a close working relationship with Obama: They had three bilateral meetings and numerous one-on-one engagements in the past 30 months. Modi will now have to figure out the unknown quantity called Trump and see if they can share a working relationship.
So, while there are no safe bets, hopefully the institutional architecture of the current bilateral framework—especially ministerial negotiations under the Strategic and Commercial Dialogue (S&CD)—will hold under the new leadership.
For instance, the civil nuclear partnership and defence acquisitions will be pursued as aggressively by the incoming administration as the outgoing one. Security, strategic affairs, defence cooperation are likely to be smooth sailing because both countries have some convergence of interest here.
To be sure, there’s still uncertainty about Trump’s outlook towards Pakistan, Russia and China and their knock-on effects on India, but it is clear that the India-US geo-strategic alliance will persevere in some form.
The problem area, as in the past, will be trade and investment. Both sides have painted themselves into intractable corners with numerous trade barriers. While Trump’s trade-related campaign tirade was largely restricted to the Trans-Pacific Partnership (TPP) and US-China trade relations, the new administration might train the arc lights on India’s $30 billion trade surplus with the US. India-US trade in goods and services touched $108 billion during the 2015 calendar year.
Interestingly, during Modi’s first state visit to the US, the joint statement set a $500 billion trade target without mentioning any end date. And while under the S&CD and its predecessor, the India-US Trade Policy Forum has held 10 ministerials so far, progress has been at a glacial pace.
Large parts of each year’s communiqué read like the one from the previous year. There are many pain points developing. For instance, in agriculture market access, India wants to export grapes, rice and honey while the US wants market access for cherries, alfalfa hay and pork.
The US has issues with subsidies in the Indian textile sector. India and the US have dithered over signing a bilateral investment deal, the main trip-wire being the contentious investor-state dispute settlement mechanism.
The other sensitive area is intellectual property rights; both sides have been gingerly circling each other with communiqué politesse masking the underlying stress. There are serious differences of opinion in services trade.
There is one redeeming feature though. Under the Obama regime, India was left out of the three large trade arrangements being shepherded by the US: the TPP, the Transatlantic Trade and Investment Partnership (TTIP) and Trade in Services Agreement (Tisa). While Trump has publicly expressed his distaste for TPP (with TTIP presumably falling in the same category), Tisa remains the odd one out.
This is one area where India will have to be vigilant, given India’s strategic advantage in services. India should also use this opportunity and leverage its relationship with the US to prise open the Asia-Pacific Economic Cooperation for a membership. This is a grouping that works well for India, given its flexibility, advantages and non-binding commitments.
It is unlikely that the Trump administration will roll over on trade any time soon; neither should India, because strategic autonomy will continue to be an asset. While the love-hate relationship can continue, both sides must endeavour to find some middle ground in the meantime.
This article originally appeared as part of my column, General Disequilibrium, in Mint on November 16, 2016. It can also be read here.

Poll Bound: Narendra Modi’s Currency Play Has More Political Value Than Economic Benefit

November 13, 2016
The Narendra Modi government’s decision to demonetise the Rs 500 and Rs 1,000 notes in circulation will have three distinct political outcomes, two of which will be advantageous for the ruling Bharatiya Janata Party (BJP).
The first, and instantly visible, impact of the late evening announcement on Nov. 08 by prime minister Modi himself is a reversal of the news cycle. Dire discussions on the polluted Delhi air and its impact on foreign investment? Gone. The unfortunate ripple effects from the army veteran’s suicide? Buried. Doubts over the BJP’s chances in the forthcoming state elections? Dismissed.
Elections to state assemblies in the first half of 2017 are crucial for the ruling party, especially since they have been smarting from the defeats in Delhi and Bihar in 2015 and West Bengal this year. The battleground states this time include Uttar Pradesh (UP) and Punjab. UP, as things stand, will see a four-cornered battle.
Demonetisation immediately changes the narrative. The BJP has been trying to stitch together a patchwork support base among the Dalits, Muslims and other disenfranchised segments of UP; their votes are crucial to winning the state. Demonetisation will, in some limited fashion, help in providing a new talking point, one that takes potshots at the privileged and mendacious classes.
Given the fact that the government and the Reserve Bank of India now plan to re-introduce the Rs 500 and Rs 1,000 notes, albeit with a new design and enhanced security features, along with the creation of a new Rs 2,000 note, the entire objective of the exercise seems to be targeted at blindsiding counterfeiters, not so much hoarders of cash. Whichever way you look at it—“surgical strikes” on either counterfeiters who aid terrorism or black-money merchants—it is a narrative ripe with opportunity for rhetoric and election sloganeering.
State elections also point to advantage no. 2. The element of surprise will probably inconvenience the other three parties. The use of cash in Indian elections is an accepted fact and some of the parties are rumoured to be large users of cash. This surprise element would have surely nixed their ground-level strategies. In short, it will be back to the drawing board for most of these parties.
It can be argued that this is a problem for even the BJP. Modi emphasised in his speech: “Secrecy was essential for this action. It is only now, as I speak to you, that various agencies like banks, our offices, railways, hospitals, and others are being informed.” But, the question remains: would he have taken such a momentous decision without consulting the BJP’s command-and-control centre, the Rashtriya Swayamsevak Sangh (RSS)? In many ways, strands of such a policy action have been appearing in the media for a while, as editorial advice or even harking back to the example of the USA which discontinued high-denomination currency notes in 1945.
The question over the consultative process gains further momentum when viewed from a political survival standpoint. The demonetisation exercise will adversely affect small traders and shopkeepers, a segment of society which has traditionally remained a strong BJP vote bank. Most businessmen in this segment depend on cash transactions and PM Modi’s move is bound to discomfit their operations. Given this bloc’s importance, there must have been some serious back-room calculations about going ahead with such a measure.
And a calculated move it is. One probable clue lies in the fresh issuance of Rs 500, 1,000 and 2,000 denominations after a brief hiatus. So, if you ignore the short term spike in chaos, inconvenience and rhetoric, the cash economy is bound to make a comeback in a couple of months, albeit in the form of newly-designed currency. That should give the traders and small shopkeepers some succour.
But, it will require the party apparatus to reach out to various trade associations and federations to communicate with them, assuage them, and address their concerns in the short term.
This will be doubly necessary given the other three-alphabet headache that’s hurtling towards small businesses at breakneck speed: GST. The new tax system envisages a complete overhaul of tax assessment, calculation and reporting. That chaos is in the not-too-distant future, it will create huge turmoil with the trading class having to register with the tax authorities, re-skilling themselves in figuring out the new tax structure, as well as chasing tax credits from authorities. As an example, shopkeepers and small businesses in Malaysia took to the streets early this year, frustrated at the complexity involved in complying with GST.
This is political issue No. 3 for the BJP and its spiritual bosses at RSS.
In the final analysis, the whole exercise seems designed to replace, rather than demonetise (which is to suck out completely and abolish), high-value notes. Counterfeiters will be hurt, middle-class families will be discommoded, and some currency hoarders will be disrupted, but the cash economy will return to a new normal in a few months. But, only after the UP elections.
This article originally appeared in Quartz on November 10, 2016, and can also be read here

India’s Disenchantment with Multilateralism

October 5, 2016

India’s initial enthusiasm for multilateralism stemmed from the belief that the global economic governance system would take on board emerging economies’ concerns

India’s decision to pull out of the South Asian Association for Regional Cooperation (Saarc) summit in Islamabad marks a new milestone in the country’s growing disaffection with regional and multilateral groupings. This discontent was most visible at the G20 summit, which it used for some unsubtle political messaging. Its near-perfunctory chairmanship of the eighth Brics (Brazil, Russia, India, China, South Africa) summit raises further questions about its interest in multilateralism.
Is there an impending shift in India’s multilateral policy framework, in much the same way that the recent “surgical strikes” pushed the strategic restraint doctrine? Will the current administration give politics greater weightage in its external policies, which till now had an economic focus? Welcome to the post-Uri policy configuration.
The future of Saarc, perennially hostage to the hyphen dividing India and Pakistan, is now further jeopardized, with Bhutan, Bangladesh, Afghanistan and Sri Lanka joining India in boycotting the Islamabad summit in November.
The low-key run-up to the eighth Brics leadership summit, scheduled on 15-16 October in Goa under India’s chairmanship, further reveals the political leadership’s fatigue with such associations. Hopefully, this will be reversed when the Brics leaders get together.
India’s stand at the latest G20 summit in Hangzhou also betrayed frustration, with Prime Minister Narendra Modi highlighting Pakistan’s export of terror. This would have seemed logical at any other global gathering, but the G20’s purpose is fostering global financial stability and economic cooperation, not airing political differences. But then, isn’t economics also about politics?
Modi’s outburst against Pakistan at a China-curated G20 summit was strategic. China has repeatedly blocked India’s attempts to enforce a UN-sponsored ban on Jaish-e-Mohammad chief Masood Azhar. In addition, Beijing is going ahead with the China-Pakistan Economic Corridor, a vital component of the One Belt, One Road initiative, which plans to pass through contested territory in Pakistan-occupied Kashmir despite India’s reservations. The last straw perhaps was China’s public opposition to India’s entry into the Nuclear Suppliers Group. India also denied China some moments of glory in Hangzhou: It refused to ratify the Paris climate accord there.
There’s also growing global disenchantment with the G20, with the weak structural engineering of this alignment now becoming slowly visible. The Hangzhou summit communique reads much like its predecessors’. It included all the well-intentioned, oft-repeated noises about policy coordination, economic growth, governance, development, inequality. Here’s the problem: The communique lacks a credible path to policy action, or any quantifiable targets. Similar communiques in the past have also helped create an atmosphere of scepticism. For example, the 2014 Brisbane summit had announced a policy framework for increasing global gross domestic product by an additional 2% by 2018, predicated on large-scale infrastructure investments. The International Monetary Fund’s staff note for the 2016 summit says the target looks unattainable because of low investment rates in most advanced economies. Consequently, analysts are rushing to publish the G20’s untimely obituary (goo.gl/57hQsn).
The G20’s shaky foundations can be traced to the circumstances of its birth. It was created in 1999—primarily as a reaction to the 1997 Asian financial crisis—as a platform for finance ministers and central bankers to discuss international financial and monetary policies, global economic trends and reform of multilateral financial institutions. In November 2008, then US president George W. Bush invited global leaders to Washington, DC to discuss a coordinated global response to the financial crisis. This became the G20’s first leadership summit, and provided the defining character of its birth: a fire-fighting unit masquerading as a global policy coordination body.
Logically, therefore, once the immediate hump of the crisis was crossed, the G20’s utility seemed diminished. Some good examples are the US’ disregard for policy coordination preceding the taper tantrum, resulting in tough times for emerging economies—and the slow progress in reforming the shareholding of Bretton Woods institutions.
The director of Globality Inc., Rebecca Liao, writes in Foreign Affairs: “Instead of coordinating economic policy among the world’s wealthiest countries, it (G20) broadened its scope to include climate change, investment initiatives, and human rights. Since its members are largely unable to come to a meaningful consensus on this expanded range of issues, the G20 then became a think tank of sorts.”
India’s enthusiasm for multilateralism stemmed from the belief that the global economic governance system would take on board the concerns of emerging economies. That hope now looks dashed, with slow progress on most issues. Add to that India’s concerns on terrorism going unheeded on global multilateral platforms. Consequently, it is quite likely that India’s policy architecture might acquire a slight bias towards bilateralism, given Modi’s predilection for one-on-one engagement with world leaders. There are also some indications of the foreign policy needle shifting slightly towards politics.

This column was originally written as an Op-Ed for Mint newspaper and can be read here 

Lost History: An encounter with the ‘king’ of Turtuk, a border village near Gilgit-Baltistan

September 10, 2016

The village is just 10 km away from Pakistan-occupied Kashmir and became a part of India as recently as 1971.


Entrance to the Royal Palace, Turtuk village
A guided tour of the Ladakh’s Turtuk village, in the mountainous region of Baltistan that is on the border of Pakistan and India, ended at what is known in these parts as the Royal Palace. After a long walk down narrow and undulating lanes in the crisp afternoon sun, shepherded by a nimble 16-year-old, we had arrived at what was supposed to be the highlight of our excursion. At first glance, it was slightly underwhelming – the house is larger than its neighbours, but little else set it apart.
The palace doors opened into a colonnaded courtyard that supported a verandah with no visible access. A short flight of stone steps, which rose steeply through a hidden corner, brought us to a figure supine on a floor mat. Our guide gently nudged the figure – a man stumbled out of his afternoon siesta, disoriented by the sight of so many strangers. He was feeble and slightly bent.
Smoothing the creases on his shirt and patting his disheveled hair into place, he led us into a room, apologising for not according us a better welcome. He explained, somewhat diffidently, that working the fields in the morning sun had induced the mid-day torpor.
He then sat on a couch, but not before picking up a wooden sceptre, crested with a distinctive metal serpent head, and placing it pointedly on his lap. He then becomes Yabgo Mohammad Khan Kacho, the king of Turtuk and descendant of the Yabgo Dynasty of Chorbat-Khaplu, a region that now falls beyond the Line of Control and in the contested territory of Pakistan occupied Kashmir. Though he no longer enjoys the powers nor the official recognition as a past royalty, he is known in these parts as the king.
Yabgo Mohammad Khan Kacho, King of Baltistan.

Across the border

Turtuk is a quaint village perched barely 10 km from the Pakistan border, under the benign gaze of the K2 peak across the border. The village, located in the Sheyok river valley about 200 km from Leh, is a verdant relief amidst the spare and stark beauty of Ladakh’s landscape.
Turtuk, in Ladakh district, is in the Indian-administered part of the Baltistan region and borders Pakistan’s Gilgit-Baltistan area.
The Gilgit-Baltistan are has for years existed largely away from the glare of Indian and international media, but the spotlight has been on it for the past month, after Prime Minister Narendra Modi publicly promised – twice in quick succession, in his Independence Day speech and before that, in his concluding remarks at the all-party meet on Jammu and Kashmir in Delhi on August 12 – to highlight the plight of residents of Balochistan and Pakistan-occupied Kashmir to the world. While Balochistan is a province in Pakistan, which has been fighting for autonomy, Gilgit-Baltistan is a part of PoK.
The Gilgit-Baltistan territory is special – it is a crucible in which trade, culture, religion, languages and cuisines from Europe, Central Asia, Afghanistan and China have come together for centuries. India has made many claims over the province and many analysts have recounted its recent political history. Interestingly, a thin strip of this province juts into India.
The prime minister’s reference to the three disputed areas has got foreign policy and strategic experts parsing his words, as well as setting off a maelstrom of articles and Op-eds (examples are here, here and here).

Overnight, a new country

This prompted me to wonder: what would the people of Turtuk, just a stone’s throw away form Gilgit-Baltistan, make of Modi’s statement? Would they also be deconstructing his speech?
One thing is certain. Nationality or sovereignty are elusive, if not transient concepts for the king and villagers here. And there’s a good reasons for this.
One night in December 1971, village residents went to sleep as Pakistan citizens. They awoke next morning as Indians. Turtuk, along with three other villages in the vicinity – Tyakshi, Chalunka and Thang – were occupied by advancing Indian armed forces during the 1971 war of liberation of Bangladesh.
Turtuk residents have only one grouse – the Indian army should have gone a little further and occupied the rest of Baltistan. The overnight change of sovereignty split many families along the Line of Control – parents on this side with children and grandparents on the other. Political conspiracies abound on why the Indian army did not move further afield when it was there for the taking.
Kacho, Turtuk’s king, also has some family on the other side. He traces his lineage to the Ghaz tribe from West Turkestan, a region today known as Central Asia. His ancestor, Beg Manthal, came to Baltistan in 800 AD from Yarkhand (which is part of modern-day China’s Xinjiang region) via the Saltoro ridge (which is to the west of the Siachen glacier) and conquered Khaplu, in modern-day Gilgit-Baltistan.
The Yabgo dynasty, Manthal onwards, ruled the Chorbat-Khaplu region of Baltistan for a millennium, expanding it over time to Ladakh’s frontiers on one side and to Ghizer district on the western edge of Gilgit-Baltistan. The dynasty ended in the first half of the 19th century when the Dogra empire, which had, in 1846 taken control of Kashmir, forming the princely state of Jammu and Kashmir, expanded its kingdom North and East.
A wall at one end of the room has the family tree painted on it, going back centuries.The king said the Indian army helped him document this. In the face of an elusive administration, the Indian army means many things to most Baltistan residents – employer; buyer of locally-produced vegetables, milk, fruits and meat; provider of healthcare and education as well as occasional source of telecom network and other basic infrastructure.
The king describes himself as a writer and said his father didn’t want him to work but just spread the word about their family. He was not trained in anything but made to read a lot. He read books written by local historians and decided that the best thing to do would be to tell his people what they were all about.
But, the Indian government banned his book based on complaints from a sect that saw blasphemy in his account of how their religious order was established, he said. He contested the ban in Indian courts and eventually won after years of litigation. But he rues the fact that he didn’t retain a single copy of the book – he doesn’t even remember the name of the Delhi-based publisher.

Connected, yet isolated

Turtuk is a microcosm of Baltistan’s inclusive culture: a multi-ethnic village, with around 4,000 residents speaking different languages and praying to different gods. Different denominations – Nurbakshi Shias, Sufis, Sunnis, Buddhists (and perhaps even Ahmadiyas and Ismaili Shias) – live peacefully, farming and trying to make sense of the burgeoning tourism business. Turtuk was opened up to tourists only in 2010. The chairman of the local school and healthcare committee remarked that many old Turtuk residents would long to see cities, but now, the cities were coming to see them.
Turtuk was an important junction on the Silk Route with ancient linkages to Tibet, Afghanistan and the steppes of Central Asia. A part of China’s One Belt, One Road initiative, an attempt to resurrect the Silk Route that connected parts of Asia, Europe and Africa, will now come close to Turtuk as it proposes to pass through Gilgit-Baltistan.
Turtuk residents fervently wish that the LOC opens up so they can meet family on the other side, re-establish social connections and perhaps even resume commerce.
The king is still recounting the region’s old linkages when his narrative is cut short with new arrivals, guests of a senior army officer posted in the vicinity. Yabgo Mohammad Khan Kacho apologises and rushes off to attend to the new rulers of Turtuk.
This article was originally published in http://www.scroll.in and can also be accessed here

What’s In The Bag?

March 7, 2016

For all intents and purposes, the Budget is in the right direction. Except, it could use a plan to achieve its ambitious goals

From the moment finance minister Arun Jaitley began reading his career’s third Budget speech, all the way till the very end, the stock market’s bellwether index, the BSE Sensitive Index, oscillated wildly. Social media comments too reflected the mood in the bourses — swinging between complimentary and scathing, to downright snarky and fulsome praise. 
One tweet even claimed (without furnishing any proof) that though the Budget speech was read out by Jaitley, its key architect was Prime Minister Narendra Modi. Another, snidely claimed the Budget seemed to have UPA-III’s imprint, given its emphasis on rural and farm sectors. There were other similar tweets. While you can’t really expect a proper analysis in 140 characters, it’s true that the tenor and content of Budget 2016 has left experts confounded and desperate to find the one thread that ties up the whole package of measures.
Indeed, there are multiple strands to Budget 2016, each striving to provide a specific solution. The question is: do all these cohere to form a meaningful tapestry? Does it make sense? It might be worthwhile to examine some of the overarching themes in Budget 2016.
Let’s consider the first charge: Budget 2016 is a political document. To be fair, Jaitley had little choice. Economic policy-making cannot be conducted in a political vacuum. With key states (Assam, West Bengal and Tamil Nadu) going to polls this year, followed by Uttar Pradesh and Punjab next year, it might be naive to expect that Budget 2016 will be bereft of any political grandstanding. 
That might also explain this Budget’s exaggerated emphasis on playing Robin Hood: imposing a slew of additional taxes on the wealthy, under the heading “Additional resource mobilisation for agriculture, rural economy and clean environment”, without bothering to specify whether these taxes will indeed be sequestered for the specified objective, or even caring to explain what happened to taxes collected under similar heads over the years. Ironically, Jaitley has himself provided the counter-point: pensioners withdrawing life savings from pension funds will now have to pay tax on 60 per cent of the accumulated corpus, if it is not invested in an annuity. As a wag observed drily, Thomas Piketty’s whistle-stop tour through India has left economic administrators with fleeting notions of inequality.
Two other broad themes dominate Budget 2016: a stimulus package to spur rural consumption and enhanced outlay to speed up investment in infrastructure. As argued in these pages a few weeks ago (http://goo.gl/GvFnbP), Jaitley was faced with a binary choice: either ramp up public investment to derive economic growth, or stick to the fiscal straight-and-narrow. A spirited public debate ensued with growth adherents advocating a temporary slippage in fiscal deficit. Fiscal hardliners argued it would be foolhardy to relax vigil during these trying times of global turmoil; a downgrade by credit rating agencies would scupper even incipient growth impulses.
In the end, the minister has chosen both options. How he achieves both ends will have to be seen. While his public investment outlay is up 15.5 per cent over previous year’s estimates, he has also set aside large amounts for the rural and farm sectors. Jaitley stated capital expenditure on railways and roads will alone account for Rs 2,18,000 crore this year. Additional outlays have been announced for investment in power generation, ports and waterways. It is interesting to note that even in infrastructure investment, the emphasis is on the rural sector: investing in expanding the coverage of irrigation (to reduce Indian farmers’ vulnerability to fickle monsoons) and investing in rural roads and rural electrification. Connecting unconnected villages will help farmers get their produce to markets. 
In the midst of this enhanced spending, the FM has also promised to adhere to the fiscal deficit target: 3.5 per cent of gross domestic product. A lot will depend on the revenues he manages to raise — Rs 19,610 crore of additional tax revenue (some of it from soaking the rich) and a 25 per cent increase in non-tax revenues. One large chunk of non-tax revenues (Rs 98,995 crore, compared with last year’s Rs 56,034 crore) is expected to come from telecom spectrum auctions. The other source of non-tax revenue is a leap of faith: the government expects Rs 56,500 crore from disinvestments. In this fiscal year, the government managed only Rs 25,312 crore against a target of Rs 69,500 crore.
Undoubtedly, the agricultural sector needs additional resources: it is not only hobbled by numerous structural deficiencies but poor monsoons over the past two years have caused deep distress in the sector. The Budget wants to double farmer incomes by 2022, by facilitating easier access to markets for inputs and finished products, higher credit allocation and better infrastructure. But, the text lacks details of how this will be achieved; there is no mention of a roadmap.
A massive allotment of Rs 2.87 lakh crore — in the form of grant-in-aid — has been made to village panchayats and municipal bodies. Again, there is lack of clarity about the end-objective of this fund flow. Will it be used for local infrastructure? How will the money be spent — in one year or five years?
The FM’s intentions seem honourable and generally aimed in the right direction. The economy needs higher public investment in the absence of private sector capital expenditure; there are deep structural flaws in the farm and rural sector that need urgent corrective action; fiscal discipline is non-negotiable. What’s lacking is clarity, or the nuts and bolts of how the FM intends to achieve these objectives. There are some other unanswered questions in the Budget:
Monetary Policy and Monetary Policy Committee have now acquired a statutory basis. Details on the committee’s composition are absent. While it has been clarified that there will be equal representation from both the government and the central bank (with RBI governor getting the casting vote), it is not known whether the original plan of appointing a senior bureaucrat on the committee as an ex-officio member still exists. The bureaucrat’s status as an observer is to report to the ministry on the voting pattern of the committee members. I am sure you get the picture.
There is an overall increase in the incidence of cesses and surcharges. One example is the Krishi Kalyan Cess, which will levy an additional 0.5 per cent on all taxable services. When combined with a consumption upsurge, due to Pay Commission arrears and a fillip to rural demand, the after-effects are most likely to be felt on the price line. What happens to inflation targeting then?
PM Narendra Modi’s ambitious Make In India programme suffers from domestic industry’s negative propensity to invest. Industry, in turn, complains that bank credit is not forthcoming. Banks, on the other hand, carp that their ability to lend is seriously impaired by mounting bad loans. In short, banks need fresh capital to start the lending process once again. Against this background, Jaitley’s allocation of only Rs 25,000 crore towards bank recapitalisation is underwhelming. FM Jaitley also mentioned consolidation; is he proposing public sector bank mergers as a way of reducing the drain on the Central exchequer?
The fiscal deficit target for 2016-17 — 3.5 per cent of GDP — is premised on GDP growing at 11 per cent. Given the global headwinds, and exports contracting for 14 months consecutively, slippage in the 11 per cent target will not be very surprising. Hopefully, the government’s resource transfers will keep the growth trajectory along expected lines.
A lot of Jaitley’s wishes are riding on revenue estimates delivering. He collected an additional Rs 54,334 crore of indirect taxes over the budgeted estimate during 2015-16 by increasing taxes on petro products, at a time when oil prices were crashing globally. Gross tax revenues are expected to grow by 11.73 per cent during 2016-17, at the same rate as India’s GDP. He is expecting tax on luxury consumption and a plethora of cesses and surcharges to fill the gap. It might be a bit of a tall ask.
There are too many imponderables in this well-intentioned Budget. Hopefully, some clarity will emerge in the coming weeks.

This article was published as cover story in Businessworld magazine (issue dated ‘March 21, 2016) as part of the publication’s special Budget package, titled ‘Budget 2016 Split Verdict’.


The story can be found here.

Byte But No BIT

September 21, 2015

Behind the hullabaloo and grand optics that will accompany PM Narendra Modi’s visit to the U.S. will be laser-focused discussions on enhancing the strategic trade and investment relationship

The agenda for Prime Minister Narendra Modi’s 5-day visit to the U.S. starting September 24, much like his previous trip, is brimming with activity. Apart from attending the United Nations General Assembly, he is travelling to San Francisco to burnish his Digital India credentials, then returning to New York to meet President Barack Obama for a bilateral dialogue and closing by catching up with key U.S. businessmen and CEOs for a closed-door conversation.
But behind Modi’s headline-grabbing California spectacle are other Indian ministers and businessmen who will be rolling up their sleeves and getting down to business in Washington DC.
High on the list is the first meeting of the newly-crafted India-USA Strategic and Commercial Dialogue (S&CD) on September 22, which was upgraded from India-USA Strategic Dialogue this January during Obama’s Republic Day visit[i]. The moniker change reflects the strategic importance of trade, economic and investment to the bilateral ties. The roll-call of the meeting attendees also reveals what will be discussed and what’s off-the-table.
On the Indian end of the table will be External Affairs Minister Sushma Swaraj and Commerce and Industry Minister Nirmala Sitharaman, with Secretary of State John Kerry and Secretary of Commerce Penny Pritzker on the U.S. side. On September 21, a day before the Dialogue, Vice President Joe Biden, Kerry and Swaraj will address the U.S.-India Business Chamber’s anniversary celebrations. Other ministers, including energy minister Piyush Goyal, will be present and when the Dialogue commences the next day, Goyal will meet his U.S. counterpart, Ernest Moniz, for the Sixth India-U.S. Energy Partnership Summit.
U.S. Vice President Joe Biden will be present at the bilateral talks between Modi and Obama. If Biden does indeed make a bid for the presidency, as has been widely rumoured, his involvement becomes significant.
So far, one thing is clear from the agenda: the Bilateral Investment Treaty (BIT) is not in the picture. That inference arises from Finance Minister Arun Jaitley’s absence from the proceedings. The hypothesis becomes even more compelling because the finance ministry has crafted India’s model draft agreement and placed it in the public domain for stakeholder inputs. There are numerous sticking points between India and the U.S. over the draft that will take time to discuss, debate and disentangle. Among them are the investor-state dispute system, intellectual property rights (IPR) and expropriation. Given that the Obama presidency is fast entering the “lame-duck” zone, the BIT might have been kept out because it is still a work-in-progress.
The Dialogue will focus on four areas, according to undersecretary of commerce for international trade, Stefan M Selig’s briefing to reporters September 16 at the American Chamber of Commerce in New Delhi in August 2015[ii]:
Building tomorrow’s smart cities in India and the related infrastructure: The U.S. will participate in “smartening up” three cities — Ajmer, Allahabad and Vizag — and the talks will identify U.S. companies that can deliver on the promise.
Participating in strengthening India’s business climate to the benefit of both Indian and American businesses: This is an euphemism for tackling all the current pain-points in the relationship, especially for the U.S.: IPR, contract laws, the Indian legal system. Strangely, pre-Dialogue chatter seems to centre only on the business climate in India, without any mention of the non-tariff barriers and curbs on movement of skilled people from India to the U.S.
Harmonizing product standards to increase trade and further deepen our industries’ integration into global supply chains: Creating and developing common standards – safety, environmental or labour – in manufacturing that will help integrate India’s trade outreach with both the Asia Pacific Economic Community (APEC) and the Trans Pacific Partnership (TPP). India is not a member of either grouping. Included will also be trade in agricultural goods and the future of the Doha Round at the upcoming WTO ministerial at Nairobi.
Developing best practices around innovation and entrepreneurship: Among the many issues on the table, renewable energy will likely find mention.
What’s different this time is that the talks could depart from the transactional nature of previous rounds and instead identify credible milestones, especially ones that help stretch the annual bilateral trade volume from $100 billion currently to $500 billion. Beyond that, both sides will look to elevate trade into a strategic and diplomatic tool, one that aligns Modi’s “Look East, Act East” policy with Obama’s Asia Rebalance strategy. The nuts and bolts of this tool are likely to be identified on September 22.
Another clue to the future direction of the bilateral and the Dialogue is the equal, if not larger, role that the private sector is expected to play over the public sector in strengthening mutual ties. That’s why the USIBC event has been scheduled a day prior to the Dialogue, so U.S. corporations can voice concerns that can be discussed at the Dialogue the next day.
A disconcerting element: apart from the fanfare around Modi’s public appearances, there hasn’t been much forthcoming from the Indian delegation, the exception being a recent and bare-bones press release from the Ministry of External Affairs[iii]. For the moment then, policy-watchers we will have to remain content with Modi’s grand shows.
ENDNOTES

[i] Department of Commerce, Statement from U.S. Commerce Secretary Penny Pritzker on U.S.-India Strategic and Commercial Dialogue; January 26, 2015; <https://www.commerce.gov/news/press-releases/2015/01/statement-us-commerce-secretary-penny-pritzker-us-india-strategic-and>

[ii] International Trade Administration, Speech (as prepared for delivery) by Under Secretary of Commerce for International Trade, Stefan M Selig; August 11, 2015; New Delhi; <http://www.trade.gov/press/speeches/2015/selig-081115.asp>

[iii] Ministry of External Affairs, Press Releases, September 18, 2015 <http://www.mea.gov.in/press-releases.htm?dtl/25817/First_Ministerial_of_the_IndiaUS_Strategic_and_Commercial_Dialogue>

Originally published in Gateway House (http://goo.gl/13YfW4)

Is the ‘Modi Premium’ Wearing Off in the Stock Markets?

May 27, 2015

As Modi completes one year in office, a sense of despondency pervades the customary reviews that ritually accompany such an event. Rumblings of discontent have emerged from various stakeholders and stock markets have taken the lead in signalling disappointment with his performance.

As Prime Minister Narendra Modi completes one year in office, a sense of despondency pervades the customary reviews that ritually accompany such an event. Rumblings of discontent have emerged from various stakeholders, including Corporate India. But it is the stock markets that seem to have taken the lead in signalling disappointment with his performance.

The bellwether index S&P BSE Sensex, comprising 30 stocks, has witnessed a major erosion in values over the past few weeks. From its all-time peak of 29,681.77 points achieved on January 29, 2015, the Sensex hit a low of 26,599.11 on May 7: a sharp drop of 3082.66 points (or 10.38%) in slightly over three months.
The capital market’s rebuff is symbolic: it tries to aggregate what’s going on in different parts of the economy and transmits its sentiment through one single number. And going by its recent behaviour, there seems to be plenty that is wrong, or perceived to be wrong.
Foreign portfolio investors, an influential investor segment in the capital markets, are a visibly disgruntled lot and they have been letting off steam by selling en masse. In the first 10 trading days in May (till May 18), FPIs were net sellers to the extent of $2.306 billion. FPIs enjoy disproportionate influence over Indian capital markets, primarily because they bring larger volumes to bear than domestic institutions. Low retail participation in the capital markets — either directly or indirectly — also keeps Indian markets shallow.


Tax uncertainties

These FPIs decided to head for the exit because of continuing tax uncertainty. Finance minister Arun Jaitley’s 2015-16 Budget had unequivocally clarified that tax will not be levied on the capital gains of FPIs in the current year. But, unfortunately, there was no assurance that past cases won’t be re-assessed. And, true to form, tax authorities sent notices to various FPIs to pay up for past gains. That precipitated widespread resentment, with some FPIs even going to court and, of course, venting their spleen by selling Indian stocks.
The minister, presumably rattled by the exodus and the bad publicity all this was generating, has gone out of his way to placate FPIs. Apart from putting all reviews and fresh cases on hold, he resorted to the time-tested stalling tactic: he appointed a committee. In effect, he has kicked the can down the road and bought some time. This incident also illustrates how FPIs have emerged as a crucial constituency, with an uneven share-of-voice.
Unsatisfactory corporate results is the other reason why Sensex is volatile. Many companies — especially in the mid-cap segment — have reported disappointing results for 2014-15, signifying that demand for goods and services continues to remain weak. A report in Mint has highlighted how Q4FY15 sales of 142 companies included in BSE-500 (and for which results were available) has grown at the slowest pace in 16 quarters since Q1FY11.
This is evidence that the economy is still far from recovery. The Index for Industrial Production has grown by only 2.8% during 2014-15. Consumer durables manufacturing contracted by 12.5% during the year, compared with 2013-14, signifying the lack of purchasing power in the economy.
Matters have been made worse by the unseasonal rain in many parts of the country this year, destroying hectares of standing crop, which typically comes to the farm markets in April. This is likely to further dampen demand for consumer goods in the rural areas. The stock markets are also trying to capture this trend.


Oil prices fall opportunity lost

One can argue that this is sheer bad luck and the government cannot be held responsible for this catastrophe. While that is true, it is also a fact that the government didn’t rush to reap the dividends of fortuitously low oil prices when it came to power. Since then oil prices have climbed 50%, spooked by the continuing West Asian crisis and some shale oil wells in USA shutting down.
There could be another charitable explanation for the unusually turbulent Sensex: that expectations from PM Modi might have raced way ahead of reality, especially after the depressing paralysis that gripped the economy in UPA-II’s second term. The common beef (pun intended) is that even the current BJP-led government has plumped for incrementalism, rather than bold policy measures they had promised.
There are two sides to this debate and both can be deemed valid. But, what is undeniably true is that the stock market has already started discounting PM Modi’s premium, even before he completes a full year in office. And, though the Sensex is still up 14.78% from where it was a year ago — it closed at 27,687 on May 18, 2015, compared with 24,121.74 on May 16, 2014 — it seems that market participants have already watered down their expectations and moderated their hopes about a magical, almost fantastical, turn-around in the economy.


Courtesy:



and then subsequently reprinted in