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For over five years, I’ve criticised ‘state creep’ on Prime Minister Modi’s watch. This tendency hit a crescendo on 5 July 2019, when the second Modi regime’s first budget was read out in parliament. While that document was riddled with state over-reach, I will remind you only of the most egregious measure: a voluntary contribution under CSR (corporate social responsibility) was converted into a criminal liability! Mercifully, it was quickly aborted, but not before it had betrayed the underlying instinct.
Inevitably, the sentiment, markets and financial indicators tanked after the Fifth July Budget. A concerned Modi tried to ‘talk up’ the economy by feting ‘wealth creators’ in his Independence Day speech, but it fell on deaf years. The markets continued to plummet.
Sensing an apocalypse, the government fired a brahmastra (ultimate weapon). It slashed corporate tax rates by 10 percentage points for all existing entities, and an even more aggressive 20 percentage points for greenfield manufacturing companies. It was a desperate, but in my world view, a hugely positive (even though I felt the stimulus could have been better designed) policy ploy to stem the panic. It half-worked. The markets abruptly reversed course, but the sentiment stayed subdued. The regime followed through with several half-measures, many of which I have applauded by clapping with one hand.
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Finally, after what has seemed like an eternal wait of five years and six months, Modi-nomics seems to be trusting private enterprise and competitive markets. Yay again; clap again; ending with the ‘thumbs up’ emoji!
But now I feel compelled to sober down. And warn the Modi regime about the dangers of an omnipresent, ever-lurking BABU-JAAL (bureaucratic cobwebs), a perfidious acronym constructed as follows:
Confused? Can’t figure it out? Well, let me explain. It’s been my perennial fear (even a phobia, I admit) that whenever any political leadership gathers the courage to launch pro-market policies, India’s entrenched and control-freak bureaucracy just swoops down and trusses up the fledgling in impossible-to-navigate cobwebs, effectively killing the doctrine.
So, I wish to warn M/s Modi & Sitharaman – please be on your guard. Please do not allow your babus (bureaucrats) to stymie these moves. And since fore-informed is fore-warned, let me show you how these BABU-JAAL conspiracies could play out.
The BPCL privatisation is perhaps the most audacious market-friendly initiative by PM Modi. In one shot, he could get USD 10 billion into the coffers and eclipse more than half his USD 15 billion disinvestment target for the current budget. Of course, much beyond fiscal efficiency, this sale will signal India’s intent to the world: we are ready to bite the bullet and propel our economy to an entirely new trajectory. But unfortunately, as always, the establishment has inserted a few blind spots which could swallow the whole effort:
There you go again: a terrific idea, caught and choked in the BABU-JAAL (bureaucratic cobwebs).
I was also thrilled when RBI pro-actively superseded DHFL’s board, appointing a seasoned professional to take charge. I thought the regulator had resolved to save the asset and inflict the pain on truant owners/managers. Unfortunately, I am sensing a BABU-JAAL here too. The fear is that the Insolvency & Bankruptcy Code will be invoked, forcing lenders to take a write-down and gum up the credit markets yet again. Worse, DHFL could close shop, in a bizarre action-replay of ILFS and Jet Airways.
Finally, we turn to the cash flow relief to Vodafone and Airtel via the 2-year moratorium on spectrum charges. It’s a tiny, but welcome, concession. Although, the BABU-JAAL is starkly visible here too. There is no attempt to correct the definition of Adjusted Gross Revenue which, in my humble opinion (and with immense deference to the Hon’ble Supreme Court), is utterly flawed. Imagine paying spectrum charges on foreign exchange gains and losses! As the dollar moves up and down against the rupee, the spectrum liability yo-yos with it. Can it get more specious/suspicious/surreal?
So, in the end, I can only repeat what I said at the very beginning: these policy reforms are sensible — but protect them against the BABU-JAAL (bureaucratic cobwebs).
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Published: 22 Nov 2019,07:12 PM IST