Who is my father?…asks Economic Growth!

Economic Growth is the illegitimate child of Capitalism!

Of course, one cannot blame the capitalists. It is the mischievous Market that seduces the lascivious capitalist to get maximum footfalls. It is the market that allures and commands the residence time of capital in its heaving bosom. Over the last two decades, we are reminded time and again that we live in the era of market economy. The phrase, market economy has become more of a semantic play at decency, if only to make the capitalist appear as part of the civilised society and not the Frankenstein it has evolved into. Even the leftists of yore have come to swear by market economics. The intellectuals in the market are no more feared for their thought leadership. They are the court musicians or jesters, serenaded in the capitalist’s plush parlours lending another layer of classical veneer to the greedy and the impatient.

No more can anyone deny the fact that we got to live with capitalism, and that too while striving for Democracy.

Is that a conundrum or a pipe dream?

Well, the provocation for the allegorical beginning to this piece probably came from the gloom and doom messaging over the last weeks across the Indian print and television media without exception. The government of the day is surely to blame for having turned every Indian into a budding economist. Everybody is talking about the plummeting GDP, rising taxation, crumbling stock market and infuriated investors. The contribution of the bearded or long-haired (reduced discretionary spend?) pedigreed economists to the current GDP has surely gone up as every television anchor have to have them on their shows as alibis, before making their own sweeping statements on the state of the country’s economy. It is all over the social media. Even WhatsApp groups of school alumni in their 50s or 60s are debating vigorously about the problem being cyclical and/or structural while another stormy session rages on in their college alumni group with the blame being put on the supply side or the demand side. Almost everyone agrees at the end that the situation is alarming.

Yes, the situation is alarming for the courtiers of the Capitalists, and it has been in the making for some time already. It has been alarming…

• …for Real Estate Builders & Brokers, who used easy debt over the last two decades, to sell property to those who did not need it for living but for investments that could perennially keep growing. Things went grossly wrong when the supply raced past the demand with ballooning prices and the RBI pressed the panic button to reign in the NPAs of banks. Demonetisation and an unrelenting taxation clampdown by the Government caused havoc to those with both black and white surpluses. Those with tax-paid surpluses were forced to wait out for the prices to kneel before adding a few more to their multiple properties.
• …for Banks/ NBFCs, since they were forced to provide for accumulated NPAs by the RBI supported by the Modi Sarkar’s middle-class approach to fiscal policy. This dried up endless financing to businesses that had been growing barely ahead of the inflation rate without improving productivity or creating export markets.
• …for the Auto and Consumer Durable industry, riding high on the ever-greening upgrade market of the surplus brigade and its race for comparative supremacy. This market segment suddenly realised the need to save more for the future as real estate earnings or high interest rates were fighting a losing battle against the Govt’s policy of low inflation and stringent taxation. Surpluses moved more and more into gold and mutual funds and demand for a larger LCD screen or a better car/ bike just petered off.
• …for the retinue of power brokers and deal makers both in the bureaucracy and those with VIP parking stickers. They realised the risk of their covers being blown away due to demonetisation and linking of Aadhar and PAN numbers to their bank accounts. They shunned the ever-obliging real estate market and decided to wait and watch till the winds change or take a call to go across the political divide.

Sadly, it is also alarming for the innocent & unaware bystanders silently watching the orgy of capitalism for couple of decades, hoping something may trickle down to them too…

• …for the farmers whose input costs never go down, whose pricing power remains castrated by the vice like grip of local politicians and traders over APMCs, despite decades of grandstanding by successive governments to include them in the market economy. Low inflation has further denuded them, pushed them more and more into the waiting arms of the moneylender. The impact of e-Mandis or including them into the banking system is probably too little or too late.
• … for those who were used to running their lives doing ‘repetitive functions’ at low cost to their employers. IT enabled systems, technology and digitisation has sent them scurrying in all directions. Social welfare and medical insurance have hardly penetrated to many despite seventy years of hypocritic socialist governance!
• …for those who retired from lowly paid support functions of the bureaucracy or the private industry with the hope of spending their sunset years in peace. Falling interest rates on fixed deposits or securities may be enough to take care of the inflation rolled over by their hairdresser, not the cost of medical treatment, travelling or rentals, forget vacations.

Unlike the democracies of the west, India got democracy because of the post WWII meltdown of global powers without having gone through industrialisation, growth of a sizeable middle class, capitalist exploitation, trade unionism and the resultant devolution of controls, habits, rules and implementation of laws through governance. The founding fathers of our vast nation took great care to give us a modern constitution without having or generating the means to deliver the rights and results of their noble vision. Probably, they were more conscious about their intellectual duties to religious and linguistic minorities than their economic responsibility to first lift them out of illiteracy and poverty. Philosophy or intellectualism are nice occupations for those whose basic needs have been gratified. Dry economics would always command the rules of the game when 3/4^th of the country is straining at the leash to attain basic need fulfillment.

By the end of 60s, the intellectual fathers had passed away, leaving the country at the mercy of the feudal lords, dynasts and their machinations. India kept simmering on the embers of caste, religion and political patronage till it stared at economic bankruptcy in 1991. This changed the flavour for some time under the Narasimha Rao government that was forced to liberalise the economy. This opened the doors to an era of capitalism where anything that happened in the country had to generate quick money for both, who brought in the capital and those who sold their policies or decisions to them. The sector that went through a boom for the next two decades was the ‘real estate’ as this made money for the feudal lords and those who could make money through their administrative powers in the government. Capitalists who controlled the policy and decision makers laughed their way to banks worldwide and India saw the age of crony capitalism in full throttle. Another sector that grew in leaps and bounds was the IT Services sector, thanks to the knowledgeable capitalists and the inability of the political class in controlling or interfering with it.

Construction of urban infrastructure and the IT industry became the bonanza for those with a piece of land or decent education, respectively. Urban incomes competed with the growth of the services industry catalysed by the spread of cheap telephony and internet services. Private savings and investments gave birth to a consumerist economy in the major cities and its neighbourhoods while the contribution of Agriculture to the GDP sank by 50%. While the Services sector boomed with exports to the more expensive economies of the west, it was also buttressed domestically by the spiraling incomes and aspirations of the educated middle class who for the first time since independence got well-paying jobs in line with their college degrees and acumen. The period 1993 till 2011 was the golden period for the urban educated. Of course, this was true for those born or able to migrate to the few big cities like Bangalore, Hyderabad, Chennai, Pune, Mumbai or Delhi and in that order. The rest of the country could only board trains to these cities for a decent education and hope to fly back in a few years after having been absorbed in the fast growing and expanding Services industry. The Services sector today contributes nearly 60% of the country’s GDP including the services that those working in this sector consume, largely as discretionary spend.

Capitalists scrambled to get into businesses, in both services and products, that gets consumed by the Services sector and the urban middle class over the last two decades. Residential real estate boomed selling plush apartments to 28-year olds who mortgaged their next 20 years income to finance the same. Those in their 40s or 50s invested in their 2^nd, 3^rd or 4^th property, planning to hang up their boots early and become entrepreneurs, most of them wanting to sell services or products to the same top 10% that they now belonged to. The good thing about this entrepreneurial class is that they got their funding from private or angel equity; capitalists peddling surplus money of the surplus class from around the world investing in another market where the neo-surplus class will continue to spend for some more time. But, the promoters of real estate companies did it the smart way, through easy money on tap from public sector banks (PSBs) under political influence and NBFCs. Similar was the case for those in the public infrastructure business taking on projects under the PPP business model. The middle ‘P’, the private investment was again funded by PSBs decided through political phone calls, not risk managers.

The Indian urban middle class was enjoying a life of surplus for the first time. They had hardly forgotten the problem of deficit that they or their parents had grown up with but were yet to learn that there could be problems of plenty. The consequences have been quite natural. Splurge, binge and hoard as much as you can. Gated communities, expensive schools, shopping malls, multiplexes, weekend getaways, cars, restaurants, pubs, nightlife, door deliveries from the Flipkarts, Amazons, Bigbaskets, Swiggys, the Olas & Ubers and the Oyos and vacations, all the trappings of a gaga consumerist society gave rise to a spiral of demand and supply. But all this was happening for the top 10% of the economy and by the same 10%. Capitalism was gaily cavorting its way in the company of its voluptuous consort, Consumerism!

They had to trip sometime and somewhere.

Not that their desires have been fully satiated, but it appears to have hit a plateau due to tight monetary and taxation policies of the Government. The lascivious capitalist does not see anything enticing being offered by the market, hence the lament that more and more millionaires are leaving India and taking their capital elsewhere where the inducements appear to be more gratifying. After all, greed and quarterly ROIs is what capitalism is all about, not nation building or paying back to the society. No wonder, the Finance Minister had to roll back with a stoic face, the FPI tax as well as criminal punishment for not fulfilling CSR obligations.

The fact that India remains less capitalist friendly with high Income Tax rates has come to haunt capitalists more since ease of doing corrupt or tax evaded business has really become difficult. The Insolvency & Bankruptcy law has for the first time put mortal fear in the minds of a promoter of losing their company. The stagnation of factor reforms (particularly land if not labour to that extent) has made Indian businesses less competitive as well as difficult to grow. Businesses that kept surviving without marked competitive advantage or entry barriers are now staring at extinction. Many of these SMEs and MSMEs have hardly any asset barring the piece of land they occupy. Even their human capital is hardly worth much as most of the functions they have been employed in are tasks that can only suffer efficiency. The large companies are a bit better off as they hold large market shares with stable competitors. The limits of their respective capacities are what makes them chug along like the old trains on our railway tracks.

India went the Services route without passing through the Industrialisation phase since there was no governance or vision to steer it this or that way. Whatever happened, happened despite and due to lack of governance. Agriculture was allowed to rot in the feudal era and Manufacturing languished in the protectionist period.

Dwindling GDP growth is the price we will pay unless the Government:

1. …revolutionises our manufacturing through fabulous export incentives & factor reforms.
2. …bring foreign manufacturers to use Indian resources to make money through exports.
3. …and intervenes in Agriculture with sledgehammer policies to cut off the Middlemen and include the farming community in the capitalist economy.

Capitalism can regain its respect in a Democracy only when it delivers legitimate economic growth and that is possible when all sectors of the economy are a real part of a market economy, not when a paltry 10 or 15% participates in what appears to be an orgy in the eyes of the rest. Democracy will always be eaten for breakfast by Capitalism unless there is Governance that implements the rule of law for all. Policies that create exports for the Agriculture and Manufacturing sectors are the need of the hour. Yes, they cannot produce results in a year, but they can be implemented over 365 days!

The current government has a golden opportunity to frame and implement nation building policies over the first two years of its term since it rules majority of the States. Federalism need not be anymore the millstone that prevents modernisation of the nation.

If this means dismal GDP growth for 2/3 years, so be it!

The alternative is to hand over the country to the whims and fancies of the short-term capitalist, prove Che Guevara right and smoke away Democracy in the Capitalist’s Shisha Bar!