What the dickens is happening?
In theory, Raghuram Rajan and Jayant Sinha should be birds of a feather. Both trace their roots to small town India, Rajan to Bhopal and Sinha to Hazaribagh. Both went to IIT Delhi and laced that with an MBA.
That provided the platform for thriving careers in the West. In their prime, both chose to come back to India. Rajan became chief economic advisor and then governor of the Reserve Bank of India. Sinha joined electoral politics, and became the minister of state for finance.
In practice, they couldn’t be further apart. Rajan talks about his worries over a drop in investments. Sinha rejoices in the increased flow of foreign direct investment. He thinks China’s slowing down is a big opportunity for India. Rajan sees it as a problem. Rajan is comfortable with the current interest rates but has a wary eye on inflation. Sinha is happy that Rajan has cut rates, but won’t say no to a little more.
One could go on. Part of the reason Rajan and Sinha see things so differently is the jobs they do. The difference between a junior minister and the head of an autonomous regulator is wider than the distance between New Delhi’s North Block and Mumbai’s Mint Road. But there is one more thing. It is that kind of an economy we have right now. Depending on the prism you choose, this is the season of light, this is the season of darkness.
Take, for example, Thursday’s headlines in different newspapers from the same Moody’s report. This newspaper saw the global rating agency as saying India will see strong growth aided by lower interest rates. The Indian Express said it questioned the government’s ability to enact legislation on key reforms and this will hamper investments. Both are correct. The report said both the things.
The head of a large conglomerate in Mumbai, whom I was trying to persuade for an interview, swore he was not going to give one for a long time. “What will I talk about?” he wondered. If he spoke about plans or projects, his existing lenders would come down on him like a ton of bricks. True, his debt is high, but no one sees his healthy cash flows, which can easily service the debt and reduce it over time.
Indeed, India’s corporate sector now comes with a class difference. Several old economy groups keep quiet and silently go about reducing debt. The hot new technology start-ups want to talk their lungs out. Their founders easily get persuaded for interviews. They have much to talk about. Actually not much, mostly the funds they are raising, though profits are a distant dream.
Headlines about start-ups raising $10 million to $100 million have become commonplace. So much so that the founder of a technology product start-up says the only innovation India’s start-ups are doing these days is in raising funds.
A few industrialists at an evening do in Delhi this week talked about spotting a few green shoots in the economy. The festival season saw healthy growth in sales of cars and two-wheelers. Oil demand and power consumption are growing in double digits, indicating more economic activity. GDP growth is surpassing China’s. Wholesale inflation is negative.
On the other hand, we are facing a mini crisis in corporate balance sheets. Forget debt, all reviews of second-quarter results talk about a slow economy and weak demand beating down profits. Indirect tax collection has grown, but advance tax numbers from companies are downbeat. FDI is going up, but private Indian companies remain firm in their reluctance to invest. And though FDI is nice and welcome, it is a mere 5.3% of the gross fixed capital formation, which is the proxy for investments.
Then there is rural distress. On the back of a poor monsoon for two consecutive years, Telangana has become the ninth state to declare a drought. We could be looking at a weak winter crop, which may turn agricultural growth negative. Consumer inflation remains high at 5%, which is the one governor Rajan watches. Our GDP growth is the highest among major economies, but we are abysmal in key areas like health and education. In both, the government appears to have abdicated in favour of the private sector. As I write this, HSBC is saying it is shutting down its private banking unit in India.
So, two contrasting pictures. The one you want to embrace is down to who you are, who you are with, and what you would rather believe. But one thing is clear. This requires a certain cohesiveness in political thought. In spite of its mammoth majority in the Lok Sabha, the ruling National Democratic Alliance is on a weak wicket in the Rajya Sabha, a situation unlikely to change soon given the results in Bihar. What is needed, therefore, is an attempt to find common ground.
That could begin with cooperation on the goods and services tax. The NDA has been trying to push it through because it believes the new tax will cure many ills that plague trade and commerce. But Rahul Gandhi, as he said in Bangalore on Wednesday, does not think it is in the national interest in its current form. Come to think of it, GST was originally an idea of the Congress.
Dickens might turn in his grave at this, but we really have everything before us, we have nothing before us. It’s the best of times, it’s the worst of times.