Thursday, April 21, 2016

732 Part 2/100 of India's Economic Growth Dilemmas and Enigmas

Mr. Raghuram Rajan, Governor, Reserve Bank of India, has tried to minimise the damage of, or neutalise criticism against his comment made in United States, "In the land of the blind, the one-eyed man is king". For that we have alrady written one blog post Problemsoftelugus post No.724 , wherein we have observed that India is not one eyed king, but is a King of Frogs. We shall, now continue, after noting down more observations of Shri Raghuram Rajan, about his one-eyed man is king comment:

"...My intent was to signal that India’s outperformance was accentuated because world growth was weak. ...".

"...I think we have still to get to a place where we feel satisfied. We have this saying - 'In the land of the blind, the one-eyed man is king'. We are a little bit that way. ..."

"...Speaking to a foreign journalist the other day, who asked what it felt like to be the bright spot in the world economy, I used the phrase 'Andhon mein kana raja' or 'In the Land of the Blind, the one-eyed man is king'...My intent was to signal that our outperformance was accentuated because world growth was weak, but we in India were still hungry for more growth. ..."

"...India’s international reputation is of a country with great promise, which has under-delivered in the past. This is why we are still the poorest country on a per capita basis among the BRICS. ..."

"...An eye for an eye will only make the whole world go blind. ... it was clear what it implied, that the whole world going blind is not a desirable state of affairs.

"... One might take umbrage since it suggests blindness is an inferior state to that of being able to see, and the saying could be seen as discriminatory. Yet Gandhiji’s focus was on the absurdity of a policy of revenge, not on blindness, and his intent was not to disparage the blind. ... "

"...At the same time, listeners should not look for insults everywhere, and should place words in context so as to understand intent. In other words, for effective communication and debate, rather than the angry exchanges that we see on some TV shows, we need both respect and tolerance. ..."

"...The greatest danger of all is that we do not communicate or debate, for then we will allow distorted stereotypes to flourish unchallenged, and divisiveness to increase. In a country like ours, conceived and flourishing in diversity, that will truly be a disaster. ..."

ybrao-a-donkey's humble comments. वैबीराव एक गधे के विनम्र राय . వైబీరావ్ గాడిద వినమ్ర వాణి. You have every right to differ with me. I respect your right. आपको मेरे मत से भिन्न राय रखने के संपूर्ण हक है। मै उस अधिकार को परिपूर्ण रूप से गौरव देता हुँ. మీకు, మీ భిన్నమైన అభిప్రాయాన్ని కలిగిఉండే సంపూర్ణ హక్కు ఉంది. దానిని ఎంతో నేను గౌరవిస్తాను. However, pl. examine this donkey's views also. परन्तु एस गधे के दृष्टिकोण को भी अनुशीलन कीजिये. కానీ ఈ గాడిద దృష్టికోణాన్ని కూడ ఓర చూపుతో కంటజూడుమీ, క్రీగంట జూడమీ.

This "King of Frogs" episode started in 1991, when Mr. P.V. Narasimha Rao, was the Prime Minister of India and when Mr. Manmohan Singh was India's Finance Minister.

Late Mr. Chandrasekhar was dethroned, when support was withdrawn by Indian National Congress. Fresh elections were held to Lower House of Indian Parliament (Lok Sabha). Mr. Rajiv Gandhi, the Former Prime Minister of India was assassinated at Sriperumbudur. In that milieu, Mr. Narasima Rao became the PM of India, and Mr. Manmohan Singh, the India's Finance Minister.

At that particular point of time (1991), India was facing a grave Foreign Exchange Reserve Crisis. The predecessor Chandra Sekhar Government was forced to export Indian gold to London, and mortgage it to tide over an import payments and debt service crisis.

Amidst that environment, it was difficult to say, whether India was caught in a debt-trap or not. Reasons: India traditionally relied on soft loan windows like I.D.A. which had long repayment schedules with only some minuscule service charge to pay.

Later, it shifted to borrowing from World Bank, with Medium Term Repayment Schedules. With the World Bank Borrowings, we inherited hidden controls in the name of Supervision of End Use. Yet, India was nowhere near an external debt trap. We were still treading a safe-course, though we have lost a part of economic sovereignty.

For those who are not familiar with the term debt-trap: The term can apply to individuals, families, Corporates and Conglommerates, even Nations. It is a situation where an entity has to contract fresh loans to repay instalments of old loans.

Then the next stage came. India started borrowing from IMF (International Monetary Fund) to overcome short term payment difficulties. The IMF had its own ARM-TWISTING TACTICS. Its diagnostic weapon was / is "STRUCTURAL MAL-ADJUSTMENTS IN ECONOMY". IMF used to brainwash countries that their payment difficulties were due to their inability to export on account of domestic inflation, and over-valuation of their currencies. In the name of rectifying this structural disequilibrium, India like other countries borrowing from IMF, was forced to devalue its Currency Indian Rupee many times.

For the benefit of those who are not familiar with Structural Disequilibrium: This theory survives on a belief that domestic inflation makes the exports of the country un-competitive, and that countries have to slash their budget deficits, remove subsidies, so as to control domestic inflation. But India's inflation is caused more by population growth and blackmarketing bazars, rather than by deficit budgets, though theoretically deficit budgets, and higher domestic interest rates, can also contribute to domestic inflation.

In reality, Structural Disequilibrium may be one of the reasons for India's weakness to raise its exports, there were other stronger reasons for stagnation of Indian exports such as the games played by the United States and the Western Europe, competition among agricultural, mining, and other primary goods exporting countries to capture the markets of the Developed countries.

Then, the next stage came. India started borrowing short term loans at Commercial Rates of interest, from international markets. This despite knowing that borrowing short term at high rates of interest can be extremely dangerous for a weak economy. India could not avoid it because the Government was under pressure from Private Sector importers who were on a borrowing spree. (Besides, there was also a need to purchase weapons. Yet, I am unable to trace any instance where Indian Public Sector Undertakings borrowed heavily, short-or-medium term, at Commercial Rates.), PSU imports, I can say with confidence, were never for unproductive purposes, unlike private sector imports, which tend to be "fanciful" to serve the tastes of industrialists and celebrities.

Back to 1991:-- The-then Prime Minister of India Mr. Narasimha Rao was a linguist. He was an intellectual. He had a reputation of knowing 18 languages. I had the fortune of reading one of his Telugu-to-Hindi translation of the voluminous Telugu Novel 'vEyi paDagalu' (English: A thousand hoods of a Divine-Serpant), with the title "sahasra phaN". He was well-known for his stiff-lips and mummy like silences. Even silence was regarded as "decision-making" in his days. May be true sometimes. Mr. Narendra Modi, now, partly emulates.

Difference between Mr. Modi and Mr. Narasimha Rao, with regard to silence:

Mr. Narasimha Rao, was by his very nature a calm and silent person.

Mr. Modi, by his nature, a flamboyant person, but maintains silence, when it is not politically convenient for him to speak. It is a sort of cunningness. Anyway, like Mr. Narasimha Rao, Mr. Modi too may not know much about the intricacies of Exchange Rate Management, External Debt Management. Mr. Modi shouts at the top of his voice, when he believes that it brings him some claps, some Face Book likes, Twitter likes, and of course, thousands of votes.

Whenever, I get a few minutes time to ponder over or muse, I pray the non-existing God, that he will please motivate Mr. Narendra Modi to spend a few minutes every day, on studies of Internatinal Economics, Balance of Trade Management, Balance of Payment Management, Devaluation of Rupee, Exchange Rate Management by RBI, Exchange Reserve Management by RBI. Reason: A PM cannot totally abandon these things to the Finance Minister, Finance Secretary and the RBI Governor. PMs can delegate the tasks of posturing for Selfies to others who have less serious work to attend to.

On the other hand Mr. Narasimha Rao was scholarly (at least superficially). It is difficult to compare great persons. I always wondered, if Mr. Narasimha Rao were a true scholar, he would not have remained so long like a slave in a dynastic Party like Congress, till Ms. Sonia Gandhi virtually drove him out. After all, there is a maxim that Politics is the last resort for scoundrels. Not that Mr. Narasimha Rao was scoundrel, but politics whether it is a place for scoundrels or not, it cannot be a place for scholars. There was a Rs. 133 crore (1.3 billion) Urea Import Advance Payment Scam for which no goods entered into India during Mr. Narasimha Rao's tenure, and there were allegations that his sons were linked to it. There were some other allegations against him such as Purchase of Parliament Members, which do not add to his stature as a Scholar-Politician.

We can take another example of a scholar-like person , Mr. Veerappa Moily. He is reported to have written a commentary on Valmiki Ramayana. I envied his erudition and hard work. But, later some allegations came out that Mr. Moily plagiarised parts of his books. I am too small to comment on this.

Considering Late Mr. Narasimha Rao as a Linguist, I was never able to convince myself that Indian Economic Reforms were an offshoot of his brain-wave. For his Crisis Management of the Payment Crisis, he seems to have depended on Mr. Manmohan Singh for guidance. Hence, the credit or notoriety for introducing Economic Reforms should go to Mr. Manmohan Singh. This curse of mine of his starting the Dynasty of Frog-Kings, should rightly go to Mr. Manmohan Singh. The dynasty is continuing along the lines of the Finance Ministers of India, right upto Mr. Arun Jaitley.

Now, the King of the Frogs story:- In a Frogs Kingdom, there used to be a King. Near the kingdom, there used to be a snake. Hunting a frog everyday for its food, the snake thought laborious. The snake worked out a plot in its mind, went to the frog and volunteered to carry it over its shoulders. Without any foresight, the frog-king accepted the joy-rides on the back of the snake. Not only did the frog rode on the back of the snake, it also invited its queens, princes, and princesses. to share the joy-ride. After a few days, the snake started pretending to be weak, unable to move. Finding the snake sick, the frog-king asked for reasons. The snake replied "As I was carrying you all the time, I could not get gather food, and I am suffering from hunger and malnutrition. The frog-king took kindly to the snake, and permitted to catch and eat one frog per day in his kingdom.

The snake initially for a few weeks, adhered to the ond-frog-a-day limit. Later, the snake, without the knowledge of the frog-king surreptitiously devoured many frogs every day, of course, without touching the King, Queens, Princes, and the Princesses.

After all the frogs are finished, the snake swallowed the King-frog, Queens, Prince, and Princesses also.

India has a peculiar quality which very few Nations around the Globe have. That is: Indian refuses to learn from history. In 1498, King of Calicut Jamorin permitted Vasco De Gama to raise a Camp on Kerala Coast. Vijayanagara Kings bought horses from the Portueguese and permitted them to occupy Goa. Around 1605 CE, Mogul Emperor Jagangir tempted by the British Traders, permitted them to build a Warehouse at Surat. Shajahan and Aurangzeb to followed suit. Vijayanagara-Chandragiri King Venkatapati Rayalu permitted British to build St. George Fort at Chennai. While the joy rides were continuing, the Europeans occupied India. Rest is history.

The same story started again in 1991. In the name of Economic Reforms, LPG (Liberalisation, Privatisation, Globalisation), Government of India opened up its gates to reckless imports, and foreign investments. Govt. lands were distributed gratis, or at throwaway prices, or on long term lease to the MNCs in the name of Special Economic Zones, etc. Tax concessions and waivers were allowed. Customs and Excise Duties were slashed. FERA Foreign Exchange Regulation Act 1973 was substituted by FEMA, Foreign Exchange Management Act.

Earlier when the Govt. contracted external debt, it was not expected to give tax concessions or lift import gates. Today, in spite of numerous tax concessions, slashing of import duties, foreign investments are not forthcoming at the expected scale. Promoters of some Corporate bodies window-dressed their balance-sheets, made false claims of their production, sales and profits, and lured foreign investors to purchase their worthless shares at high prices. Computer algorithms used by foreign institutional investor consultant firms know little about the factual positions prevailing in factories, and they know only figures and data which were cooked up by promoters of Companies. Thus while gullible foreign investors invested in useless Companies, intelligent foreign institutional investors cornered Companies which have huge real estates and lands.

Today, if somebody takes pains, to compile actual field level data, consolidate them and present on their website, we can know the extent to which India has been colonialised by the European and American Companies. Though they may not be participating directly in the Management of the Companies in which they hold substantial shareholdings, they may have already started influencing the purchase and investment decisions of those Companies.

In India, in respect of widely held Companies, where there will be hundreds of thousands of small shareholders spread all over the vast country, a foreign investor who just holds only 20% of shares of a Company can take over management of the Company, with or without the concurrence of the promoters of the Company who were the Indian collaborators of the foreign investors.

Question: How a Foreign Institutional Investor, or even a Foreign Individual Investor, holding a sizable bunch of shares in a Company can influence its purchase decisions?

Answer: We shall take up the case of an Automobile Company. When the Indian Company had no foreign shareholdings, it could procure bulk of its raw material and component requirements locally within the country. Now, the Foreign Institutional Investor with sizable share holdings can arm-twist the Board of Directors / Promoters to import raw materials, components from abroad at exhorbitant prices, or paying royalties. The Foreign Institutional Investor can also influence Marketing and Export decisions of the Company, and tune them to the foreign body's advantage.

While India now makes a facade of having got out of external debt trap, because it could building substantial foreign exchange reserves received through inward foreign investments, the country is caught in a Foreign Investment Trap. In this Foreign Investment Trap, the country has to continuously mobilise foreign investments, if it is to maintain its equilibrium. Reason: India neglected its Balance of Trade Adversity. India faces an extremely dangerous balance of trade deficit. India's exports, particularly exports from Manufacturing Sector are not rising.

India's agricultural exports cannot be depended upon for their consistency. Reason: Uncertainties of monsoons. Domestic shortages owing to uncontrolled population growth. More mouths to feed. Productive Agricultural lands are being converted into vacant house sites, on which neither cultivation takes place, nor houses built.

We neglected , and are neglecting our cottage and small scale industries, which used to shoulder most of our export targets. Large Industrial Houses, experience shows, have very poor export performance. On the other hand, they guzzle our foreign exchange resources through reckless imports. They are like Miss India, Miss Asia, Miss Universe, Miss World Title Holders. They are good for nothing, except as show pieces. Our saviors were always cottage, small scale, tiny and medium industries, whom we treat as cinderella.

In spite of my best efforts, my blog posts are being pulled towards more religious matters, whereas I intend to write more on our ECONOMICS and FINANCE. They are the top priority not only of India, but also of the World. However, I shall complete the ten parts series I have undertaken to write about the review of the Lecture of Shri V.V. Lakshmi Narayana, Additional A.D.G.P. Maharashtra, and the Former CBI JD, Hyderabad, about producing hundreds / thousands / hundreds of thousands of Swami Vivekananda-s in India. Then, we have to write a 100 posts about Indian Judicial Systems and Practices. Are our hands are not full?

Subject to corrections and deletions. To continue. सशेष. ఇంకా ఉంది.

1 comment:

  1. eToro is the most recommended forex trading platform for new and pro traders.


ఘోరమైన విమర్శలకు కూడ స్వాగతం, జవాబులు ఇవ్వబడతాయి. Harsh Criticism is also welcome.