Friday, 11 July 2014

Jaitley's Budget That Might Have Been (But Wasn't)

John Greenleaf Whittier hit it on the noggin: "Of all sad words of tongue or pen, the saddest are these, 'It might have been.'"

My feelings on reading about Indian Finance Minister Arun Jaitley's maiden budget were akin to being socked across the face with something bloated and wet. After Narendra Modi's dramatic election win in May, we have all been treated, like the IBM salesman's bride, to rousing speeches about how wonderful it's all going to be. We were told that the socialist-shackled economy was going to be unchained and a powerful, roaring tiger set free at last. Many of us had virtual goose-pimples at what was going to happen.

But when the time for action arrived, what we got was this timid left-of-centre budget that may well have been authored by the previous government, with its discredited populist model of pretending to help people by looting them.


Swaminathan S Aiyar summed up his assessment of the Modi government in one damning sentence, "Sher ki soorat, khargosh ka kaleja" ("Face of a tiger, liver of a rabbit"). Ouch!

Having let myself be carried away by the hype of radical change, I had begun to predict what the budget was going to contain. Let me swallow my considerable embarrassment and share this list. 

I believed the thrust of the budget should have been about retooling the Indian economy to redirect it away from the primary sector (agriculture) and towards the secondary sector (manufacturing). A once-in-history opportunity has opened up for India with the rising costs of Chinese manufacturing and the aging demographic of China, and India should move post-haste to inherit the mantle of the world's factory. The opportunity to dramatically raise GDP and living standards through this one shift alone is unprecedented.

And so, I imagined that these would be the major policy announcements:

1. Fiscal discipline and a healthier exchequer by ending all subsidies - food, diesel, electricity, etc. (This could be gradual, say over 2 to 3 years, to prevent a sudden shock to the system, but the government needs the courage to stay the course and not roll back these measures.)

2. To offset the pain of the sharp price rise from the removal of subsidies, a drastic overhaul of the tax laws is required to help the middle classes keep more of their money - a high exemption limit of Rs 500,000 a year, and a flat tax of 20% thereafter. To avoid tax arbitrage, corporate taxes should also be reduced to a single flat rate of 20%, with no exemptions, loopholes or surcharges. All employee benefits should count as personal income to avoid fringe benefits rorting. Simplicity and low-overhead administration should be the name of the taxation game.

3. Labour laws should be drastically simplified, and should allow hire-and-fire for firms of any size, without compensation. The incentives this creates for setting up enterprises will offset the uncertainties created by the lack of job security for workers. The lower classes who are hit by the rise in prices should see some relief through increased opportunities for employment.

4. Land laws should be simplified to allow takeovers by government and private industry with one-time cash compensation and nothing more (definitely no guarantees of employment). The aim should explicitly be to drive agricultural labour and small farmers out of farming and into industry. Farmer suicides are a symptom of unviable farming practices. Getting small farmers out of farms and into factories is the most humane solution to the problem.

5. FDI upto 100% should be allowed into every sector, including defence and multi-brand retail. The message should be that India is open for business.

6. The Companies Act should be dramatically simplified to incentivise the growth of industry, with a complete end to license raj. It should be easier to do business in India than in Hong Kong.

7. The legal system should be simplified and the capacity of courts should be raised manifold to allow speedy disposal of cases, especially land, property and other civil cases.

8. The money saved through cutting subsidies (in the lakhs of crores) should be used to develop hard infrastructure - primarily new factory towns, expanded ports, roads and railways to connect factories to ports, and improved communications. Funding could cover the gamut of Public-Private Partnership models. Global manufacturing companies should be able to come in with a complete absence of red tape, set up 100% owned factories in the Indian hinterland, acquire land at reasonable rates, hire (and fire) local labour, develop and operate their own roads (and levy tolls), develop and operate ports, and push goods out into the world as fast as they can make them. The stated aim should be to take over from China as the world's manufacturing hub within 5 years, and the government should pull out all the stops to make that happen.

9. The bulk of the remainder of the revenue that accrues to the government should be spent on "soft infrastructure" that raises human capital - primary healthcare, primary education and trade-oriented training and certification. The aim should be to tap into unemployed youth and make them employment-ready in the shortest possible time. Higher education is a relative luxury and should be largely privatised, with foreign universities allowed to set up local centres. The elite will fund themselves in a variety of ways to acquire university-level education.

Further in the area of soft infrastructure, a powerful antitrust body should be established with the clout to order the breakup of the largest corporate entities if required. Capitalism without a liquid market will distort rather than develop the country. Additionally, a pragmatic environmental clearance board should be set up that works with industry for sustainable development instead of acting like a blocker.

10. States should be cut free of the central government's apron strings, with only infrastructure projects of national importance to be funded by the central government. In all other respects, the states should be made to compete with each other to attract foreign investment, skilled labour, tourism, etc. A time-bound plan should be announced to introduce a single Goods and Services Tax (GST) across the country, say within a year, with revenue flowing to the states. The rate should be a low and round figure, preferably 10%.

Through all of this, the positive message that should be conveyed is that a new era has arrived and there are huge benefits to be reaped. While there may seem to be big risks and disadvantages, the bold and the enterprising will become prosperous beyond their dreams. The sense of excitement that such a budget unleashes will overcome the fear and negativity that arise from generations of socialist conditioning.

Alas, this was all a dream, and we have now woken up to the reality of Jaitley and his rabbit-livered budget.

Friday, 4 July 2014

Kashmiris Should Beware The Exasperation Of The Liberal Indian

"Beware the fury of the patient man", said John Dryden a long time ago.

I'm one of the most liberal-humanist specimens one could find, subscribing as I do to a near-libertarian philosophy (I only draw the line at gun rights) and a deep and abiding suspicion of governments, corporations and society itself as forces inimical to the individual.

Still, Kashmir vexes me. If I can blurt my feelings out in one short sentence, it is that Kashmiris should stop being so precious.

The fuss they make about an Indian prime minister visiting the state! Shutting down an entire state in protest?

Kashmiris (and by that I mean the Muslim separatist agitators) need to take a long hard look at themselves, their environment, and their choices.

An independent Kashmir is not what Pakistan has been fighting for, and the people of Kashmir will experience a frying-pan-to-fire situation if they ever find themselves out of the Indian union. True independence is easier dreamt about than achieved.

Kashmir as an independent state is unlikely to be viable, in either an economic or social sense. Kashmir is a landlocked state that will depend on the goodwill of its neighbours to survive economically, and that goodwill is going to prove a scarce commodity since both India and Pakistan will be put offside by Kashmiri independence. Socially too, as Mirwaiz Umar Farooq himself admitted, the Kashmiri Muslim populace is itself divided into Wahabi, Salafi, Barelvi and Deobandi sects, not to mention the Shias of Gilgit-Baltistan in Pakistan-Occupied Kashmir. Not to put too fine a point on it, Muslim sects have shown time and again that they will turn on one another with murderous ferocity the moment they are left alone with no external enemy to unify them. Iraq and Syria are the latest tragic examples. Kashmiris should be careful what they wish for. The killings will not stop after independence. Only their ability to blame the Indian army will.

Who is it in Kashmir who wants independence anyway? Only Muslims in the Kashmir valley. The Buddhists of Ladakh and the Hindus of Jammu know better than to trust their fate to the tender mercies of a Muslim majority, and would opt to stay with India. The examples of Pakistan and Bangladesh serve as a reminder, if one is required, of what happens to religious minorities in Muslim states. If it comes to a plebiscite, India will play its cards so that Kashmir is splintered even further. After all, the will of the people is the will of the people, and if the Ladakh and Jammu regions vote for India, who can deny them their choice?

Lastly, as economies go, India is ramping up while Pakistan is winding down (although the terrorist state may take another decade to finally sputter and die). If Kashmiris are smart, they will try and latch on to one of the fastest-growing economies in the world, because that is what India is projected to be.

India has had enough of the Kashmiri stalemate, and it's not just Hindu right-wingers who want to see an end to the special status of Jammu and Kashmir as codified in Article 370 of the Indian constitution. The move to repeal Article 370 has broad support across all Indians, and it will happen sooner or later. Pakistan is not in a position to stop any Indian moves within its own territory, and the world (i.e., the West, Russia and China) has no more sympathy for Muslim separatist movements. It's only the Muslim world that could back Kashmiri separatism, but even this support is hardly likely to be unanimous or whole-hearted. Middle Eastern regimes are wary of extremist monsters like the ISIL (Islamic State of Iraq and the Levant) and AQIM (Al Qaeda in the Islamic Maghreb), so the Indian government could receive covert support even from many nominally Muslim countries in its face-off with Kashmiri separatists.

All in all, the Kashmir issue has festered for too long. Pakistan needs to disappear (which it will) and the Kashmiris need to set aside their juvenile ideas of independence and come to the party. The Indian juggernaut cannot be stopped, because things have reached a stage when even liberals have had enough.