The start of the year began with a lot of hope of brighter things to come. Now that 2011 has come to an end I would like to amend slightly the line of a popular song "What a difference a year makes". At the beginning of the year thing India was still shining, economic growth was being predicted at 9 percent , the stock market was doing well. The media was highlighting the Commonwealth Games corruption scandal. The social activists using Anna Hazare as their mascot started raising their voice. Twelve months later, the picture looks rather gloomy. Economic growth is now being predicted at 7 percent or below. While a few people involved in some of the corruption scandals were jailed, some of them are out on bail. No one has been convicted. The activists got carried away with their own importance and seem to have underestimated the wily politicians.
The picture on the economic side is staring to cause concern. There is now talk about India going down Greece's path. While we enjoy the comfort of the over 300 billion dollars in reserves it covers nine months of imports. In addition there is a substantial portion of the foreign currency borrowings coming due. Yes, obviously exports will partially offset the off flow, but take into account the outflow of FDI and overseas investments by Indian companies. In the meantime the credit markets are tightening up and the ability of Indian companies to roll over their foreign currency borrowings ( loans, bonds and convertibles ) becomes more difficult. If oil prices go up, the margin of safety becomes perilous. There is a reasonable chance that one or more Indian companies could possibly default or restructure their borrowers.
In the meantime with their eye on the forthcoming critical state elections in some states and longer term , the politicians are playing their usual games. They are trying to out do each other in terms of hand outs and creating obstacles to obstruct legislation which would encourage foreign investments or reduce corruption. As a result some of the states are running huge deficits. In some states to influence the farmer vote bank, the state governments have been providing free electricity as a result of which these state utilities are unable to pay the power generators. This in turn compounds the problems of the generators who bid aggressively for the privatized power generation and are now being squeezed by non-payment of receivables on one hand, and rising costs on the other. Also the non-availability of the feedstock. As the string unravels the banks who financed these power projects are now seeing the non-performing loans continuing to mount. This is just one aspect of it. One could go on about education - subsidized lap tops and and tablets, food subsidy and so on, costing the tax payers billions of dollars. None of the governments targets for power,education, highways, have been met. The Center for Science and Environment, a 22-year-old New Delhi -based advocacy and research organization has in a recent report mentioned that "71 cities in India "....had devastated its surface water, it was depleting its ground water and it had no plan for managing its water or waste water" and its rivers have in effect become drains for the expanding cities.
Anna Hazare's team had the wind behind the sails in the early stages, but his key lieutenants got a little carried away and started dictating terms.It had to be the Anna way or the high way. In the meantime some of the skeletons in their own cupboard started emerging. Also instead of focusing on just corruption they started opining on other sensitive political matters.In the process they forgot that India is a democracy and no matter how well meaning your intentions are, you cannot over rule the Constitution or the whole country falls apart. In this, they underestimated their opponents, the crafty politicians, who managed to stall the passing of the anti-corruption bill , with all parties pointing fingers at each other.With its continued criticism of the Congress Party , the activists are increasingly being seen as fronts for the BJP. It might not be the case, but both parties have enough dirty linen. To spare one gives the impression that you are not neutral. A lesson to be learnt is that you cannot topple the edifice built over decades with a few thousand people, unless you resort to violence and that is not the Indian /Gandhian way. You have to chip away at it as Mahatama Gandhi did and get the support of the population and the media. You have to take and live the moral high ground and ultimately outfox the foxes as Gandhi did with the British.
What has also been interesting is that finally the business leaders have started voicing their concerns over the state of affairs and that there is no captain steering the air-craft carrier. Yet in some of the scandals in the telecom,mining and other industries, it is some of these names which are household names or business icons which have been dragged in the mud. Whether they are guilty or not remains to be seen. Also some of the larger groups are investing more overseas than in India. Prime Minister Manmohan Singh recently chastised the business tycoons in his own gentle version of " Let he who is without sin cast the first stone".
As we start the new year, it is becoming increasingly obvious that hard decisions have to be made, and all political parties have to set aside their personal agendas and come through as they did in the early nineties to prevent another crisis.Otherwise we will be reverting back to the Hindu rate of growth. Without accelerated growth and its increasing youthful population, the politicians will be faced with the Indian basanti revolution .
The picture on the economic side is staring to cause concern. There is now talk about India going down Greece's path. While we enjoy the comfort of the over 300 billion dollars in reserves it covers nine months of imports. In addition there is a substantial portion of the foreign currency borrowings coming due. Yes, obviously exports will partially offset the off flow, but take into account the outflow of FDI and overseas investments by Indian companies. In the meantime the credit markets are tightening up and the ability of Indian companies to roll over their foreign currency borrowings ( loans, bonds and convertibles ) becomes more difficult. If oil prices go up, the margin of safety becomes perilous. There is a reasonable chance that one or more Indian companies could possibly default or restructure their borrowers.
In the meantime with their eye on the forthcoming critical state elections in some states and longer term , the politicians are playing their usual games. They are trying to out do each other in terms of hand outs and creating obstacles to obstruct legislation which would encourage foreign investments or reduce corruption. As a result some of the states are running huge deficits. In some states to influence the farmer vote bank, the state governments have been providing free electricity as a result of which these state utilities are unable to pay the power generators. This in turn compounds the problems of the generators who bid aggressively for the privatized power generation and are now being squeezed by non-payment of receivables on one hand, and rising costs on the other. Also the non-availability of the feedstock. As the string unravels the banks who financed these power projects are now seeing the non-performing loans continuing to mount. This is just one aspect of it. One could go on about education - subsidized lap tops and and tablets, food subsidy and so on, costing the tax payers billions of dollars. None of the governments targets for power,education, highways, have been met. The Center for Science and Environment, a 22-year-old New Delhi -based advocacy and research organization has in a recent report mentioned that "71 cities in India "....had devastated its surface water, it was depleting its ground water and it had no plan for managing its water or waste water" and its rivers have in effect become drains for the expanding cities.
Anna Hazare's team had the wind behind the sails in the early stages, but his key lieutenants got a little carried away and started dictating terms.It had to be the Anna way or the high way. In the meantime some of the skeletons in their own cupboard started emerging. Also instead of focusing on just corruption they started opining on other sensitive political matters.In the process they forgot that India is a democracy and no matter how well meaning your intentions are, you cannot over rule the Constitution or the whole country falls apart. In this, they underestimated their opponents, the crafty politicians, who managed to stall the passing of the anti-corruption bill , with all parties pointing fingers at each other.With its continued criticism of the Congress Party , the activists are increasingly being seen as fronts for the BJP. It might not be the case, but both parties have enough dirty linen. To spare one gives the impression that you are not neutral. A lesson to be learnt is that you cannot topple the edifice built over decades with a few thousand people, unless you resort to violence and that is not the Indian /Gandhian way. You have to chip away at it as Mahatama Gandhi did and get the support of the population and the media. You have to take and live the moral high ground and ultimately outfox the foxes as Gandhi did with the British.
What has also been interesting is that finally the business leaders have started voicing their concerns over the state of affairs and that there is no captain steering the air-craft carrier. Yet in some of the scandals in the telecom,mining and other industries, it is some of these names which are household names or business icons which have been dragged in the mud. Whether they are guilty or not remains to be seen. Also some of the larger groups are investing more overseas than in India. Prime Minister Manmohan Singh recently chastised the business tycoons in his own gentle version of " Let he who is without sin cast the first stone".
As we start the new year, it is becoming increasingly obvious that hard decisions have to be made, and all political parties have to set aside their personal agendas and come through as they did in the early nineties to prevent another crisis.Otherwise we will be reverting back to the Hindu rate of growth. Without accelerated growth and its increasing youthful population, the politicians will be faced with the Indian basanti revolution .
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