New Delhi: Rather than the “Ides of March”, future historians in India may write about the “Ides of August”, should the plans now under preparation of influential groups (each working towards the same objective) be ready by their intended launch date, 15 August 2020. The plan of action is to begin around that day and move into higher and higher gear thereafter. The calculation of these groups (who are in regular informal coordination with each other) is that by 15 August, the economic situation facing hundreds of millions of citizens in the country will have become so dire—indeed hopeless—that the tinder thus created would be sufficient to ensure that manifestations of discontent get sparked and spread across urban areas. This is expected to have an immediate impact on the investment climate in India, which is becoming a country of interest especially for units seeking to relocate from China. It is a given that the Ministry of Finance has been conservative and still moored to the past from the time the Narendra Modi government was sworn in on 26 May 2014. Even after the immense tensions in the economy caused by DeMo 2016, the rollout of GST as initially structured, and now the Great Indian Lockdown, the ameliorative responses of both the Ministry of Finance and the Reserve Bank of India have exhibited much the same caution that the US Federal Reserve Board and the Treasury Department showed in abundance during the years preceding the Great Depression of the 1930s. Because of such a timid stand, unemployment in the US during the 1930s reached the previously unimaginable figure of 24%. But President Donald J. Trump cajoled both the Federal Reserve Board as well as the Department of the Treasury into giving out trillions of dollars in doles, a scale of relief several times more than ever witnessed during past crises, accompanied by shock among conventional monetarists and economists. Because of Trump’s measures, the US economy has started to rebound during the last month, with unemployment figures falling by 2.6 million. In India this far, while the Agriculture Ministry and to a more limited extent the Company Affairs Ministry have finally—in the sixth year of Modi’s period in office, expected by well-wishers to last a total of 15 years—gone in for “Modivian” reforms. Sadly, many other key ministries have remained sluggish in their approach to change. This has created hope in those unalterably opposed to Prime Minister Narendra Modi, the “Anyone but Modi” groups. They have informally come together and are relying on a “Brains Trust” comprising mostly of expat experts, assisted in private by officials within the system who are sympathetic to their objective of weakening the hold of Modi over the people, thereby preparing the ground for a meltdown of governance in the manner last seen during the final 28 months of the Sonia-Manmohan government.
INSPIRED BY U.S. UNREST
Groups opposed to the Modi government have been enthused by the civil unrest being witnessed in the United States. The proximate cause of the unrest there was the cold-blooded execution of an unarmed and unresisting African-American man by a Minneapolis policeman of Euro descent, but the massing of angry crowds could also be explained by the spreading unemployment in the US, at one time reaching an estimated 40 million before now beginning to decline. The young adults who have lost jobs during the past few months form a goodly proportion of the crowds defying curfew in several US cities, and the calculation of the “Ides of August” planners in India and outside is that a similar phenomenon—a sharp rise in unemployment in India—will lead to the same unhappy outcome. India is a country of the young, and unless they are given good education and productively employed, the new generation is not going to have the patience, tolerance for hardship and self-control of those who were of their age in previous generations. The lack of attention to the actual ground situation of some of the bureaucrats tasked with filling in the details of Prime Minister Narendra Damodardas Modi’s ambitious schemes has been most evident in developments relating to the estimated 140 million migrant workers scattered across the country. No move was made to ensure that funds were provided to take care of such essentials as the rents of such individuals, even in states such as Tamil Nadu, which gave each migrant worker 30 kilograms of rice and 1 kilogram of cooking oil. Rent to the landlords needed to be paid but was not. Neither a subsistence allowance to each migrant worker at his or her work location nor ensuring mass distribution of grain from otherwise rotting FCI food grain stocks was properly attempted. An audit needs to be made of the losses incurred by FCI through disposal of food grains wasted through negligence over the years, although neither this nor any accountability for the past is at all likely in a system that has protected its own even since 1947. The “Ides of August” groups say that several of their sympathisers within the portals of government have been placed in key positions in the present government, and that in matters of policy or the crucial task of giving early warning of impending events, these Trojans are expected to give misleading suggestions and reports, so as to ensure that policymakers at the top remain unaware of ground reality.
‘MOOD OF ANGER WELLING UP’
In several cities including Mumbai, migrant workers rent not a room but a bunk bed in a cramped room, that too for 8-12 hours every day. They rest on the bunks for that period each day, and spend the rest of each day at work or remaining on the streets till the time comes for the bunk they have rented for a few hours to fall vacant when the other occupant leaves for his or her daily shift. Those working out the details of the Great Indian Lockdown, which became effective at midnight 24 March, ought to have given a window of 5-6 days for migrant workers and others to leave for wherever it was that such workers wished to spend the lockdown period. It was clear from the speech of PM Modi first announcing the lockdown that the government viewed the threat from Covid-19 as seriously as Prime Minister Winston Churchill talked of the threat of invasion from Nazi Germany in his 4 June 1940 address to the nation. Modi made it clear in his sombre 24 March address to the nation that this was a war against a deadly foe that will entail great sacrifice, but which must be won. Before the coming into force of the nationwide lockdown, the bureaucrats tasked with its implementation ought to have ensured at least five days for citizens to plan and carry out their moves rather than calculate that just four hours at night was sufficient as notice period, which it plainly was not. During such a preparatory phase of the Great Indian Lockdown, transport arteries needed to be kept open rather than shut down in the manner they were (at incredibly short notice).
Prime Minister Modi, who since 26 May 2014 is the de facto Chief Executive of the Nation, took the decision to enforce a countrywide lockdown on the country to prevent the millions of deaths that modelling by international agencies such as the Gates Foundation, Johns Hopkins and the Imperial College of London forecast for India. These estimates, which have since proved to be shamefully inaccurate everywhere in the world, left no other course for a conscientious follower of Mahatma Gandhi such as PM Modi to adopt except that of the lockdown. However, those within the government who were tasked by Modi with working out details of the measure ought to have provided sufficient time and logistics for an estimated 140 million migrants situated in different parts of the country to either be given facilities to stay put comfortably rather than move to their preferred lockdown locations and raise the risk of infection in rural areas poorly served by the public health machinery. Officials tasked with working out the operational details of the lockdown needed to ensure that those who stayed behind in their work locations were assured accommodation through assisted payment of rent to landlords and the provision of essentials and a subsistence allowance provided from the start of the lockdown by a government headed by Prime Minister Modi. It needs to be remembered that 85% of the wages of workers has been met in UK by the Conservative government of Boris Johnson. There are similar doles in the US under Trump, as in Singapore, Germany and several other countries. No such funds appear to have been released in India, only an unenforceable command that companies “retain jobs and freeze salaries”. Units making zero income, thanks to the lockdown, cannot be expected to retain staff or pay salaries. Vulture funds looking at arbitrage profits through the misery of citizens claim that a poor country cannot afford such measures, when the fact is that such assistance is particularly needed in countries where substantial chunks of the population are within sight of starvation, while more millions have crossed into the boundaries of Sub-Saharan subsistence. Looking at the migrant situation in the entire country, some states (such as Kerala, Karnataka and Tamil Nadu) seem to have handled the issue better than others such as Gujarat or Maharashtra, which have hardly seen a stellar performance in this regard. Because of inadequate attention paid to the operational details of the Great Indian Lockdown (GIL), millions of migrants have returned home to their villages in UP, Jharkhand and Bihar with horror stories of getting fleeced by truck drivers or being beaten up by policemen and starving en route. Apart from carrying the risk of Covid-19 infections to their village homes, stories of extreme hardship are daily being disseminated by returned migrants in families where other members work in the police or in the military across India. Overall, the planners of the “Ides of August” movement believe that a mood of anger is welling up against both the government as well as the upper classes. They say that for the first time since the close of the 1970s, a class divide is opening up in the minds of hundreds of millions who feel ignored by the system and who have been left to fend for themselves. It is not known whether such a change in rural narratives is being noted by intelligence and other police agencies or if so, whether officers close to the groups opposed to Modi are blocking transmission of full and accurate information to the levels needed for immediate corrective action. Given the plans being prepared, it is important to ensure through effective ameliorative policies based on “Sabka Saath Sabka Vikas” that a point not get reached as would trigger civil disorder on a scale which would severely impact the future prospects of the aspiring superpower led by PM Modi, to the delight of his domestic detractors and the list of this country’s international foes and rivals. The window for adequate relief measures designed to rectify the situation is closing and after some time, will shut completely. Fiscal action in the sphere of tax rebates and lowering of rates along with a massive expansion of money into the productive system so as to stimulate demand are needed since the day before yesterday.
SEEKING POLICY GRIDLOCK
Those opposed to Narendra Modi are now preparing to catalyse and ride a series of events after the “Ides of August” that they expect will culminate in a process which will result in the government going into a policy gridlock, much as was the case in the final 28 months of the Sonia-Manmohan decade. They are in regular contact with experts (mostly stationed overseas at present) on social psychology, military science and economics. The latter have predicted to their contacts in India (based on the information fed to them by friends in the system in India) that the economy is headed by early next year towards what they have characterized as “hyper-deflation”. Such an event would involve steep falls in output after an earlier collapse in demand, accompanied by lower prices as producers desperately seek to unload stocks on a market shrinking in effective demand by the hour because of the fall in purchasing power. Many of these expert advisors have occupied key policymaking slots in the Government of India and know that institution well along with many of its personnel (many of whom informally update their external contacts about developments in India). The latter have told their external and internal contacts in the “Anyone but Modi” groups that the recent downgrade by Moody’s to the margin of junk status was not because of the Rs 20 lakh crore additional expenditure announced by PM Modi on 12 May, but because “not enough was being done to rescue and revive the economy”. Interestingly, the advice of those in the “Brains Trust” who still give advice to the present government was precisely that: to do little, and to cling to fiscal and monetary conservatism, the very course of action that they now privately claim led Moody’s to its ill-advised downgrade of an economy that even adversity cannot keep from becoming the third largest in the world. These experts have sought to establish that the actual quantum of outlays announced by PM Modi “add up to less than 3% of GDP rather than 20%, and that this is woefully inadequate” to help the economy to regain its old momentum. Aware that an important component of Narendra Modi’s support base comes from the salaried middle class and the professional classes, they predict mass layoffs in companies during July and August, with the dire situation continuing for several more months. By the close of 2020, they calculate that it would be almost impossible to get the economy moving out of the critical care facility for at least the next three years, thereby casting a shadow over the 2024 polls and before that, polls in states such as Bihar and Uttar Pradesh. From their insider knowledge of the functioning of North Block and Mint Road, the experts consulted by known and unknown opponents of Modi do not believe that innovative ideas will get acted upon, such as the RBI going ahead with a massive increase in money supply which could be distributed directly to workers, or the Finance Ministry giving tax rebates and write-offs for units giving more jobs.
SPENDING NEEDED FOR THREE YEARS
It is a given that three years will be needed to recover from the consequences of the policy response to Covid-19. At least 5% of GDP for this and the next two years will need to be spent as additional expenditure to mitigate the effects of the pandemic and the policies it has spawned on the broader economy. Interest rates need to be cut at least for MSMEs and SMEs to 5% through the RBI subsidising banks making such loans. In a situation of falling demand, what is needed is not additional funds at the same high interest rates (which is in the range of 11-18% when compared to near zero or negative interest rates in other major economies), but much lower rates for existing loans through the life of such loans. Rather than go by “babu logic” and extend moratoriums in 3-month instalments, such relief should be given for at least 18 if not 24 or even 36 months, especially in industries that are badly hit. Otherwise, high interest rates and RBI-caused chokeholds on fresh financing will result in a spike in NPAs over and above the horrendous amounts already caused by reckless lending to crony capitalists. Interest rate policy in India has been designed to favour overseas vulture funds holding the overseas assets of bureaucrats, businesspersons and politicians, who also benefit from the longstanding policy of allowing the rupee to fall against major currencies, while verbally comforting those invested in rupees with the placebo that the fall of the currency has not been as steep as in ramshackle economies such as Pakistan. A lowering of bank interest rates to 5% on existing loans to MSMEs and SMEs can be effected through RBI action designed to compensate banks. This would unleash animal spirits in a determined way, but those advising opponents of PM Modi (and who are awaiting an economic collapse) are certain that this will never happen. The reason they give is the influence in the policymaking community of arbitrageurs who borrow at almost zero interest abroad and invest in India, for example by selling shares purchased a year or less back at a profit and retiring their debt with a handsome gain at the expense of an economy that is groaning under high interest rates and a falling rupee. Why obvious measures such as allowing companies to raise additional share capital on the basis of the stock value during the previous 15 days rather than the present 26 weeks (if the latter be higher, which given the circumstances, it is likely to be) not get done. Plainly, such flexibility is beyond the capability of the bureaucracy in a country filled with innovation and entrepreneurial talent choked by system-created blockages to their utilisation. A hopeful sign is that PM Modi seems to have finally prevailed over such elements and has been announcing several essential reforms during the past few weeks. Many more are needed, and soon, if the hopes of the “Ides of August” planners are to be dashed.
The faith in these groups in the tendency of North Block to get policy wrong has been fortified by the just announced decision to raise the price of aviation turbine fuel by 56% in a situation where airlines are struggling to simply breathe. Automobiles and housing are other sectors, and in both the cause of their faltering is the collapse of retail credit and the rise in delinquencies caused in large part by the economy slowing markedly years before the Covid-19 shock. Thus far the RBI seems unwilling to address this problem sufficiently so as to bring retail credit back to health through an economy made strong by demand created by sufficient liquidity. The manner in which the Finance Ministry and the RBI managed the 2016 demonetisation of 86% of India’s currency has lowered the reputation of the latter institution especially to a level not seen before in its history, and the only way to redeem lost trust would be for the Central bank to take adult rather than baby steps to begin the rescue and revival of the economy by the close of 2020, a task that policy fashioned with the innovative mindset promised by Modi to the people of India in his many speeches could still achieve.
MODI MAY SURPRISE WITH MORE REFORMS
Because of PM Modi’s swift actions, the IAF will get the first four Rafale fighters (of 36 ordered) within a few weeks. This is 18 years after the A.B. Vajpayee government first began negotiations on its purchase. India can become the platform for several topline US aircraft, such as the F-35, except that the induction of S-400 systems from Russia has made this problematic. The F-35 manufacture plan was abandoned in Turkey after Erdogan went in for S-400s. India’s C-130 J Hercules aircraft, Globemasters, Chinook helos and the F-777 light howitzers can take care of any intrusion in Ladakh, and sufficient volumes of each can be stationed and partly made in India if policies get designed for the purpose. Russia needs to be kept happy through additional purchases, but not by installing the S-400 and foreclosing the setting up of production lines of state-of-the-art weapons systems from the US. Despite optimism by those gleeful about what they see as the impending disaster of the government failing to prevent hyper-deflation, those planning the “Ides of August” movement may be in for a surprise. Over the past few weeks, major reform after major reform has been rolled out by the Modi government. Even as early as before 15 August, additional reforms and economy boosters may take place as to speed up the process of ensuring a soft landing in a situation where, as Rahul Bajaj points out, the Covid-19 curve has not flattened but the economy’s growth curve has. Recent studies show the novel coronavirus has a much lower death rate than earlier predicted by alarmist agencies and journals. The decisive manner in which PM Modi has gone in for Unlockdown 1.0 despite warnings from prophets of doom favouring a longer lockdown give rise to hope that Modi may be able to ensure that North Block and Mint Road finally be made to deliver on the policies needed to ensure a soft landing for the economy and a subsequent move upwards of the growth curve. This will lead to disappointment within the experts from abroad and their associates in India who are looking forward to a meltdown of governance in India as a consequence of what they believe is by now an almost inexorable move towards hyper-deflation in the economy by the close of 2020. The consequent misery among the people, they expect, will lead to a situation that would render the governance mechanism ineffective and which would lead to mass civil tumult. They do not anticipate remedial action by PM Modi as could result in their forecasts and plans getting derailed even before 15 August 2020, but Narendra Modi has surprised his detractors and opponents many times in the past, and may do so again before long.