A Verdict on the AAP v/s BJP v/s Congress Debate

The AAP v/s BJP v/s Congress debate has taken the country by storm! It's like Sri Lanka v/s India v/s Zimbabwe (where the Congress is Zimbabwe). Well, it doesn't matter. The country has given its verdict. While most are overjoyed with the result, a lot of us are sour. Some call it the 'death of democracy', yet others are claiming that it's a bubble waiting to burst, and then there are those who believe that the most controversial party would've done a much better job at the helm.

This post is not for bragging about the BJP's victory. It offers insights into what transpired. It is an analysis (without statistics) of each party's actions and their repercussions.

A friend said that his relatives in Ahmednagar were happy with the Congress. The Congress had waived off farmers’ loans and electricity bills. These subsidies are what has kept them in power for 55 out of the 67 years, and will continue to do so. You see, the Congress has spoiled people below the middle class so much that they don’t want to work hard anymore. The MGNREGA has given the lower strata the easier choice of being paid without working. As a result, labour for agriculture has become expensive, indirectly impacting the price of food grains. The PDS has, as usual, led to hoarding of food grains by middlemen creating an artificial shortage. Again, prices rise. This time, the middlemen make money. Policy paralysis, countless scams and almost 0% accountability has frustrated almost everyone.

Most of India (including me) was delighted with AAP’s dominating victory in Delhi. I must admit, however, that I was sceptical of AK ever since Anna Hazare claimed that his Jan Lokpal proposition was being diluted by Kejriwal and used for selfish reasons. After forming a government over much brouhaha, the repeated U-turns made by AK and company, mindless dharnas and unfeasible economic decisions left Delhi worse off than it was. Water tankers earlier would charge 800 bucks per round. After Kejriwal’s resignation, ungoverned, they started charging 1,500 bucks per round. Imagine the plight of common man who believed in AK. Plus the number of resignations from party members and mud being slung them, the vehement abuse of all politicians by AAP members; these left a lot of people disillusioned.

It is true that most people support AAP for its cause – wiping out corruption. But in a country like India, where corruption has penetrated every aspect of our lives, it will take a mammoth effort. A mere resignation within 50 days and blaming other parties for it won’t suffice. Hell, office politics is tough because of colleagues. What gave Kejriwal the feeling that running India’s capital would be any easier?

Corruption is a major issue for the middle class and bourgeoisie, not for the lower economic classes. Their concerns are jobs, wages and prices – primarily of food items. While we were crying about Salman Khan mistreating Gauhar in Big Boss, the poor man barely had food to eat because of job losses and food prices shooting through the roof. He was left exasperated. Consequently, he turned to the only man who talked the language he wanted to hear – Narendra Modi. More than the media, immigrant workers in Gujarat carried word of his good work around. Labourers would let their friends and family in Bihar, MP, UP and other places know about how efficient the governance in Gujarat is. Lower strata people (including Delhi’s slum dwellers) then decided to vote for Modi. “Wo tarakki laayega” was their reasoning. They are hoping Modi will bring more jobs and empower them to live a better life. They’re hoping this will make them earn more so that they can live in better houses, eat better and send their children to English medium schools.

The Congress’s definition of inclusive growth is flawed. Imagine an organization paying money to its employees for years regardless of shoddy jobs being done (or none at all). How long will it survive? Apply that concept to a whole country. Now imagine an organization providing its employees a conducive environment, giving them the necessary tools to perform well, bringing in business to ensure they have work, rewarding them accordingly and expanding consistently. Now apply that concept to a whole country. Which model will succeed?

The BJP has its flaws too – lots of them. No government is clean.  Nor will they make all of India’s issues disappear. For all we know, Modi’s model might fail miserably because other states don’t have the same entrepreneurial DNA as Gujarat. But the man deserves a chance. Narendra Modi comes with a proven track record – that of 12 years. He already has made the cabinet leaner, which will hopefully lead to project approvals faster.

Indian citizens are not in favour of the BJP; they’re in favour of growth and development, which currently only 1 man seems capable of delivering. Narendra Modi has sold us Indians the only feeling which is stronger than fear – Hope! It is this emotion that has led to BJP’s landslide victory. This is a humble request to put aside all bad blood and get behind the current Prime Minister of your country. He needs your support to help you live a better life. And I think he deserves it.

Inflation, India & Politics (IIP)

There’s one thing common between inflation and the Indian government. God damn them both!

Very quickly, inflation is the increase in price of an item sold versus its previous price. The inflation could be measured on a month – on – month basis or a year – on – year basis (the price during the same month in the previous year). Inflation has 2 indices viz. WPI (Wholesale Price Index) – price of goods sold in the wholesale market and CPI (Consumer Price Index) – price customers pay for buying goods. The Indian government conveniently uses WPI to measure inflation in order to show numbers far less alarming than the actual ones. CPI (the price we citizens pay) is inclusive of chains of retailers, service taxes, excise duties and more. It’s probably 2 – 2 ½ times the WPI.

Inflation & the Economy (c) colourfultimes.com

While we're busy debating over IPL match fixing allegations, SRK's ban from a cricket ground and stupid actions of Siddharth Mallya, fuel inflation has increased 7%+ as compared to the previous month, while vegetable prices increased a mammoth 61%. IIP (Index of Industrial Production) is gloomy, export figures are being fudged, and the current government is mired in scams. And just a couple of weeks ago, corporate India was begging for rate cuts due to the slowdown in growth. Right! This would give people more money to buy, reduce operational cost of corporate houses and make them profit while we foolishly spend on stuff we don’t need.

The present predicament is also called stagflation, where growth slows but inflation stays high and it’s very 

bad news for a country’s economy.

Yes, fuel inflation is justified because it depends upon the global price of crude. But food prices?

Arresting inflation (c) economicnoise.com

I’ve discussed some reasons for inflation here. The price of primary food items has shot up more than 80% in the last 2 – 3 years. These are essential for survival of a country’s citizens; rich or poor, urban or rural. But precious little has been done to address this. India, in 2011, sat on a 75 – million tonne supply of food, about half of which will get wasted while about 50% of our population will stay malnourished. Sub standard warehousing and storage facilities, infrastructure, transportation & logistics and more contribute to this inflation conundrum we’re facing. Then there’s the huge chain of middlemen and wholesalers. The increase in lifestyle cost has prompted them to hoard food supplies which lead to price rises. And yet, we vehemently oppose FDI in retail – something that could improve these circumstances – easily fooled by the political rhetoric of kiraana stores losing their livelihood. Political parties propose this reform when in power and oppose it when in the opposition. Why? Simply to show how pro – reform they are when in power. Supporting the same when in the opposition will mean potential loss of bragging rights in campaigns running up to the elections.

The government has already stated there will be no major reforms until 2014 (read elections for the Union Government). And what will they offer? Fuel cost cuts, subsidies in food and other incentives which will squander tax payers’ money. All this while, the ‘India Shining’ story is gradually fading away. A 1% drop in GDP leads to loss of 15 lakh jobs in India. And we’ve fallen 2 ½ % in the last 2 years. Should we really vote this government into power again? The Congress needs a jolt! One that makes them realize not to take their seats for granted. Agreed we will lose out for the next few years again due to an even more inept party coming into power, but it things will get better in the long run. Remember how we grew when the Congress came back into power after the BJP lost their incumbency? Politicians are not incapable; they simply don’t want to support growth for fear of loss of voters who depend on their meagre handouts. Maybe they should take lessons from the late YSR Reddy, Naveen Patnaik, Narendra Modi, Nitish Kumar and others.

The Inflation Conundrum...

So the RBI has raised interest rates 9 times this fiscal year; the last one by 50 bps. The GoI and RBI claim this is being done to counter inflation, which seems to be steady between 8 – 9%. Developed countries suffer from stagnating capital markets, while developing countries have to combat inflation.

Inflation is mainly of two types – supply driven and demand driven. Supply driven inflation means the supply outscores the demand, leading to a reduction in price due to abundance and surplus of goods & services in the market. Demand driven inflation, on the other hand, leads to increase in prices as the demand is larger than supply. The Indian government seems to be treating the existing inflation issue as demand driven. It believes there is surplus liquidity in the market and hence asks the RBI to raise interest rates to make money more valuable. But this action seems to be doing very little save adversely impacting our country’s growth figures. Hoarding of some primary food items has been occurring on quite a few occasions (sugar in 2009, onions last year, etc.). The demand is thus, much higher than the presence of those commodities in the market and this leads to increase in their prices. But a 150% price jump? And that too for basic food items? Does the GoI think the poor, who form 60% of India’s population, will be able to afford it? And does the GoI think this problem will get sorted by increasing lending and deposit rates in banks? Think again.

The lower class needs food to survive, and this dwindling of food supply is the primary cause of food inflation, which I can presume is in double digits. 22 lakh tonnes of food grains get wasted annually due to sub – standard storage facilities set up by the governments. Infrastructure (highways, railways, connecting roads, etc.) are in appalling conditions. Over 1 lakh litres of rain water annually get wasted per city because the government has no storage set ups for it. Imagine the wonders reduction on dependence of rain water could do for farmers. They could be lesser worried about uncertainty, food harvests would be close to bumper crops every year, more mouths could be fed and proper infrastructure could ensure the food commodities reach all the people.

The central government needs incentivize farmers to produce more crops. Private companies like Reliance, Future Group, ITC are doing something on those lines by offering farmers more money for their produce and eliminating middlemen. This is also increasing supply chain efficiency and benefiting the urban customer. Companies like Jain Irrigation can build a lot of water storage areas and ensure that the farmer is less dependent on rains and ground water and feels more secure at his profession. Tax benefits need to be increased to companies which work on developing hard and soft infrastructure (the latter includes hospitals, toilets, schools, colleges, etc.) in backward villages. The government needs to encourage companies carrying out such activities which will lead to overall growth of rural areas and still maintain our food production and supply, so that we do not have to depend on foreign countries some decades later for food grains.

True, the suggestions I have made may sound a bit farfetched as India has a lot of leaks in its system. But if anyone can make it possible, it is the team of Dr. Manmohan Singh, P. Chidambaram, Montek Singh Ahluwalia and Pranab Mukherjee. We have a very formidable team at the head of the Central Government, along with a very able chairperson of the RBI. It is about time these leaders pay attention to glaring problems in the Indian economy. These development policies will not only help India continue on its growth drive avoid getting stunted, but also ensure that happy and satisfied citizens of India revote the Congress into power for at least the next 2 terms. It remains to be seen what the politicians of India really want from this country and their positions.