Through the Looking Glass

INTRODUCTION

INDIA’S CONTEXT

India has changed significantly in the recent past. Its economic march has continued to power ahead and the various transitions highlighted in my earlier book continue apace. And many of the fault lines and challenges we discussed then also remain. Before we get into how change can be brought about, it is important to know where we are.

India has come a long way from being a member of the Fragile Five countries in the Taper Tantrum, to a more stable economy, though still impacted wildly by oil prices. This reflects our inability over the last five years to develop a strong export base that could create greater stability for the economy. Growth rates have been strong, even if somewhat impacted by demonetization and GST. That such large events have not swayed the economic growth trajectory materially is a testament to the underlying strength of the economy. Sustained low inflation calls for both deft economic and political management, as well as monetary discipline.

SOCIAL CHANGE

Democracy remains very strong in India. I believe we do not emphasize this enough. Changes in the power mandate have always been peaceful. Governments are voted out and re-elected by the people. While the ruling party at the Centre (BJP at present), is in a strong position, it is not uncontested. The landslide results of the general election of 2019 have not necessarily been reflected in the state elections that have followed, where local issues and candidates have found more resonance.

As is evident globally, and in India too, we are witnessing a strong wave of nativism. The world over, democracies are electing majoritarian leaders and replacing moderate ones, and countries are voting to exit blocs to protect national identity and integrity. The debate between civic and ethnic nationalism has been brought to the fore and tested in multiple political, social and judicial forums in India, whether in Sabarimala or the National Registry for Citizens (NRC) in the North-East.

Change is also reflecting across the age spectrum for women, from improved sex-ratios to more education, to #MeToo. However, this has not translated into greater participation by women in the work force – a percentage that is low and continues to decline.

Regional tensions do develop, but dissipate as well (a Dravida Nadu or Bihari-Gujarati spat, or a Bangalore-North-East divide). Caste remains a key fault line and this is reflected in the strident demands for reservation in education, jobs and promotions, and indeed amendment to the SC/ST Act and the setting up of commissions, though some economically backward sections now have access to reservations for the first time.

MACRO-ECONOMIC INDICATORS

Aviation is a good representative sector to show how Indians have arrived on the consumption scene (at the right price point, of course). Many more people now fly domestically than travel by AC trains annually (~140 million vs ~130 million). There has also been massive growth over the past decade, even with a slowdown in the auto sector, across two and four-wheelers and commercial vehicles. Fast Moving Consumer Goods (FMCG) consumption has become premium and has grown in volumes. The demand for electronics like mobiles, etc., has been so strong that it continues to vitiate the current account, though the Make in India initiative is taking some root now. E-commerce is taking both demand and supply deep into India.

What has disappointed, however, is the sluggish growth in real estate, largely due to high positive real interest rates and the clean-up forced by changed regulations in the sector.

Investment-to-GDP ratio has fallen from a peak of ~34% to ~28%, though now it seems to have turned the corner. Given the growth rate has not materially altered, maybe this is a sign of a more efficient economy where the Incremental Capital Output Ratio (ICOR) has improved dramatically. A combination of efficiency in the economy, coupled with increased investments, could perhaps have propelled an even higher growth.

Jobs remain a key political discussion point and the investments being made are capital-intensive and not labour-intensive. Research shows the rising investment required to create jobs. Many sectors are still stuck with the NPAs of the previous cycle: telecom, power, and roads, still account for the bulk, even as there have been some resolutions in steel, etc. Competitive intensity in many sectors has checked the profitability of corporate India, while helping to stoke consumption. Aviation is again a good example of this.

Traded-goods exports have not materially changed in the last five years. We started with US$300-odd billion exports and ended with only a marginally-higher number five years later. This is when imports, which were US$500-odd billion when oil was at US$120/barrel, went down to ~US$400 billion, is now back at around US$500 billion. What has ‘saved’ India is increasing services exports and remittances. Both reflect a small minority of people who have done well. With growing global protectionism, there are questions regarding many aspects of both. Some interesting items to watch out for are the monies Indians spend on importing education, the amount sent out via Liberalized Remittance Scheme (LRS), and the increasing outflow on royalties and dividends.

With the poor dynamics of its current account, where India consistently hemorrhages, balancing its external accounts has required her to open up more on the capital account side. In allowing market access to India, it turns out to be a compulsion rather than a negotiation from a position of strength. Many sectors are now open for 100% or significant majority foreign investment. There have been instances in the last few years when, after the promoters, the largest stock ownership was held by foreigners. They now own a quarter of the listed universe.

The high real interest rates have led to domestic saving moving dramatically into financial products, and this has created a large mutual fund and insurance Industry. However, if real interest rates were to be loosened to spur investment, one could see the trend of foreigners owning more and more gain momentum as domestic investors seek to rebalance holdings with physical assets and gold.

BUILDING THE THREE PILLARS

India is now moving to reasonable levels of sufficiency for all its citizens in terms of personal capital: roti, kapda, makaan (food, clothing, housing). Bumper food production over the years has meant that India has granaries filled with more grain than it can consume. In the last few years fruit and vegetable production has grown beyond grain production. This also means better nutrition. The trend of a thali being more cheaply available now is also mentioned in the recent Economic Survey. Even though there is much ground to cover in getting every Indian access to their own home, continued low real-estate prices have made homes more affordable. The Government too, continues to focus on building homes under the Pradhan Mantri Awas Yojana (PMAY), with the motto of ‘Housing for All’.

There are many notable successes in building the physical capital of bijli, sadak, paani (electricity, roads, water), including the number of airports opened, metro lines laid, roads constructed, electrification of railways, development of ports, waterways, toilets, rural/low-income housing, etc. However, a significant portion of infrastructure investment has been publicly financed rather than through private money. Private (and foreign) investment is still chasing completed assets where there is some stability and predictability of cash flows, whether in airports or roads. With the combined fiscal deficit again touching 11%+ levels (after Covid-19), and pressure from the Seventh Pay Commission awards and accumulating pension deficits coming up, finding the monies to continue these investments remains a point of concern.

The human capital of shiksha, swasthya, suraksha (health, education, social security), has seen new Government initiatives: Aayushmaan Bharat, Jan Dhan, and PM-KISAN to name a few flagship ones. These initiatives are increasingly offering social security nets to large sections of the population. This could create new opportunities and a lower cost of living for citizens, preventing many from falling back into the poverty-trap. What remains to be seen is how the public exchequer will fund such security nets. If the security net is not reliable, however, it will continue to lead to stealth privatization by those who can wean themselves away from the Government.

STRUCTURE OF THE BOOK

My earlier book sought to offer a prognosis of what will or will not change from the perspective of an investor willing to place his bets. The book has many facts and figures. Much of the analyses, recommendations and conclusions have met the test of time and remain relevant. It is heartening to hear from some readers that they keep the book as a ready reference on the Indian economy. I have since had the opportunity to dig again into some of my notes to refresh my thinking on various issues.

This book describes what can be done to make change possible. It offers a practical view of how Government works, who the key players are, and what motivates them. It is a ‘how-to’ book but does not claim to cover all aspects of governance. It highlights from the vantage point of an officer on special duty to a Minister of State of the Union Government, a set of things that came to my notice. There are certainly other perspectives, radically different from mine, to be celebrated and learnt from. This is not a political book and hence it does not make any points with respect to any particular Party or Government. If you are looking for masala, there is none!

The objective of writing this book was to abstract learnings from various events and situations I came across in my tenure. Many sections were written in response to incessant requests on how to land such a job or contribute to change. While this may seem like a desirable route, there are many other ways one can contribute.

Given how engrossed we are with our daily lives, we sometimes gloss over the vastness of the Government. Many people have simply disconnected from the State. We may proudly display voting-ink stained fingers but only a few care to engage in open debates and discussions that shape our Society.

I hope my experiences will also show the magnitude of the work a politician has to do simply to remain in currency. They deserve our consideration for tackling the sheer breadth of expectations. The Bureaucracy faces its own challenges. I am now more at peace and understand which aspects of rules cause problems, and that there is no point in blaming particular persons. This is not to say that citizens should not have expectations for a better, easier life, or quicker delivery from the State. However, making the System work requires engagement, not apathy or derision.

1.AN ENCOUNTER WITH THE SYSTEM

What engages, energises and excites people are experiences, stories and narratives. The key to effecting any change is to capture the imagination of the citizen and policy-maker. Facts and figures are useful, for they form the backbone of decision-making, but what gives life to change is the living drama that narrative brings. An LPG cylinder or a light bulb in a poor home is a statistic; the emotional, life-changing photo-videostory of the moment is what achieves resonance. Knowing that India has 400 unused airstrips is information; powering 40 of them to start operations is what changes lives and moves people.

There is huge motivational power in stories and anecdotes. Discussions with a human element are far more powerful than dry facts when attempting to galvanise support for change. One challenge a policymaker faces is to sift the stories presented to him to identify the ones that impact a large number of people, and are thus worth investing time and political capital on. It is important to have the facts and frameworks at hand so that the noisy pressure from a minority does not push through changes the silent majority must then suffer for a long time.

This book looks at issues of development through the lens of various players in Government, especially politicians, who can engage significantly with emotions and stories. Working with a Minister allows one to observe close-up the perspective of a decision-maker. There are practically no charts or tales in this book, but it is not devoid of information, data or facts.

This book incorporates a multi-stakeholder perspective and reflects the complexity of designing, communicating and making change happen. If you desire to drive change, you have to lead with deep emotion; learning to channelize emotional energies in the right direction is important. The private cost of public failure becomes the basis for creating political opportunity to rectify public failure or reduce private cost. The thought evolving globally is the need for nations to pay out some basic income to its citizens to meet the minimum costs of living. The political possibilities of such a move are fascinating and captivating.

2.LADDER OF DEVELOPMENT AND PROGRESS

We introduce a new way to look at the ladder of development by stacking up the probabilities of a citizen getting access to public goods that offer basic dignity via physical and human capital. Such public goods are conceptualized as a stack. A citizen builds on each component to create an independent life for himself and his family. Unfortunately, staying on the ladder is hard with the churn in jobs, businesses and economies. Poor access to public goods and the lack of safety nets make it even harder for a citizen to stay on the ladder.

Enabling larger segments of the population to get onto and remain on the ladder of development is easier when economic growth offers a larger pie for distribution. Even if the needs of those impacted negatively by a policy cannot be immediately settled, growth gives the confidence that as time passes more will become available. It is when growth stops or slows down that building the ladder of development becomes a great challenge. If for no other reason than to assuage the hardships of those who lose out, economic growth must continue. If growth either stalls or is concentrated in a few hands (whether cast as the rich or as minorities), antagonism builds among the rest, who perceive these segments to be taking away what is their rightful share.

Becoming a productive member of Society through employment or business was regarded as the best way to both generate and distribute income in the economy. As technology upended the accepted model of jobs, incomes and wealth creation, these became concentrated in the hands of those who could enter the global production-distributionconsumption value network. The pathway to prosperity in the previous century had lain via schooling and employment. If you studied hard, you could get a good job and reasonable pay; that was the social contract for students. This is no longer the reality. The gig-economy has changed the description of jobs and technology has made it easier and less labour-intensive to do several jobs. Technology integration will increasingly determine economic