If you have one last wish for India, ask for MODI not KEJRIWAL

Sandip Sabharwal - Uncategorized - If you have one last wish for India, ask for MODI not KEJRIWAL

AAP’s Economic Logic, Not Good for India
The germination of AAP as an offshoot from the Anna Anti Graft movement has raised a lot of expectations in the minds of the Indian Middle Class and the poorer class due to the pain that they have suffered in the hands of the Ultra Corrupt UPA government in terms of heightened levels of corruption and runaway inflation. Over the last five years job growth has completely stalled, growth and income increases have slowed down and inflation has spiralled. This has renewed socialistic thoughts in the minds of a vast swath of Indian populace who are looking at an alternative that can rescue them from the clutches of traditional politicians and bureaucrats who are perceived to be not only exceptionally corrupt but also least bothered about the sufferings of the people.
However in the long term the Ultra Left ideology of AAP puts us more at risk of below potential growth, a downgrade of the country’s rating, a squeeze in growth and job creation as well as runaway inflation.
The easiest thing to do is to give out things for free in terms of subsidies. Giving out things free leads to wastage. An example can be seen even in the case of diesel. As the subsidies have come down and prices moved up the consumption has moderated drastically. A precious resource like water being given out free at around 140 litres per capita when the consumption on an average might be not more than 80-100 litres will lead to wastage. Secondly any product that is sold lower than the market price distorts the market place, leads to theft. Delhi Jal Board might have a surplus, but due lack of investments,no up gradation of networks and no capital expenditure on connecting newer areas with pipes. It needs money to invest and expand and improve the network. Free water will lead to lack of investments and inability of supply to reach new areas or improve the network in existing areas. Laloo Prasad Yadav was widely acclaimed as a Railways Minister; however the Railways degraded during his tenure as no steps were taken to improve passenger amenities, quality of stations or trains. It is easy to show a surplus if you don’t invest anything.
For all the shortcomings of UPA I like their cash transfer schemes. This way the commodity is market prices and every consumer gets a fixed subsidy per annum. Since the commodity is market priced the wastage and consumption normally comes down. This is a better way to give subsidies if at all they have to be provided.
Similar is the case with electricity. Subsidies lead to erratic supplies, eventually the government’s fiscal position deteriorates so much that it cannot pay subsidy after a few years. Supplies get cut and everyone is a loser. Today there is enough and more electricity available for supply in the country but lot of distribution companies still prefer power cuts as every incremental supply leads to move losses and government subsidies are either not paid or delayed inordinately. Supply at rates that are below the cost of supply will lead to wastage in general. If distribution companies have positive cash flows they will invest in networks in order to reduce losses that will benefit the consumers in the long run. Over the last 10 years the supply of electricity in Delhi has improved drastically and losses have been curtailed. The cost increase to the customers is much less than the purchase prices which have shot up due to rising cost of Coal and Gas which is known to everyone. Now Delhi has announced a Rs 700 Cr subsidy. This will wipe out the Fiscal Surplus of Delhi and take it into a Deficit.
Look at how the Congress Governments of Haryana and Maharashtra have responded to the Delhi Subsidies. Haryana announced a subsidy of Rs 600 Crores and as I write we hear that the Maharashtra Government has announced a subsidy of a whopping Rs 7000 Crore. This will be disastrous for Maharashtra Government finances. The Fiscal Deficit of Maharashtra last year was Rs 23000 Cr. With this it will go to Rs 30000 Cr & it will include total electricity subsidies of Rs 18000 Cr. These governments like that of the AAP in Delhi or several state governments have no idea of how to take the country forward on the path of prosperity or development. They just know how to give dole outs at the fag end of their governments tenure. However as we have seen in Rajasthan this does not influence the voters so much.
Equality in the economy can come in two ways. All move up economically or all move down to distribute the current levels of progress. AAP socialism seems to be that of taking everyone down to the same level. By scaring away foreign investors or coming out with statements that portray all corporate as crooks will lead to a withdrawal of investments, lower job creation and much slower trend growth. Finally most of the revenue of the governments comes from taxes. If growth collapses then tax collections also collapse and this will lead to a further deterioration in the Fiscal Position. Once subsidies are introduced they simply cannot be withdrawn or reduced. It can only go up.
I have tried a lot to garner more information on their economic thinking, however have been unable to. How will they generate jobs, since they believe all corporate s are crooks? They want more government in the economy after India has successfully moved away from that over the last decade. By asking government auditors to audit private companies it has set a very bad precedent which will open this up in the future to misuse. Any company that does not go along with the view of the government in power can be threatened with a CAG audit. With all due respects to CAG, their traditional style of working has to criticize everything minor or major. This will create fear among private companies and make them withdraw to the sidelines.
Imagine if RBI has to take its decisions by referendum every time, it will not be able to focus on what is good for the economy for the long run. It has to take decisions in the short run which are not populist but good for the economy in the long run. Why is it that mature democracies of the West do not have referendums? The main reason is that the government in power has to sometimes take decisions that are good for the country in the long run and not necessary populist. Referendums in general will lead to populist decisions.
Recently AAP has set up committee to deliberate and come out with their long term economic thinking and policies. My fear is that given that the top leadership is Leftist it will be very difficult to formulate policies that are good for long term growth. Any growth or development oriented policy that they come out with will look very similar to that of BJP and as such take voters away from them so it is unlikely that they will go that way. It will be interesting to see what they finally come out with.
It is the extreme corruption and very high inflation under UPA which has made people fascinate about parties like AAP. Their anti corruption plank is good but not much beyond that. For example what is their plan to bring out the black economy in Delhi? They do not want to turn the traders away from them so they will not do much on this front. Also what plan do they have to bring out the huge black economy in the Real Estate sector in Delhi. I do not think that AAP has any plans to increase revenues. As such if the plan is to dole-out and not create any mechanisms to collect revenues the government can never be sustainable.
Instead of improving efficiency their manifesto talks about making contractual staff permanent, filling vacant positions in the govt. This will increase the fiscal gap and reduce money available for development. Government is already overstaffed. The need is for them to work efficiently.
Regularizing unauthorized colonies is bad. Once done more will come in the expectation that someone will come and regularize. The expectations are much greater from a party that is made up of highly educated people who should know what is good for the country in the long run.
I have no qualms in admitting that I would like Narendra Modi to become the Prime Minister. He has given a vision of progress without dole outs and promises of giving things for free. This is what India wants as of today. I guess that the challenge that he faces is that of his and several BJP CM’s positive image as against that in states like Maharashtra where the BJP-Shiv Sena alliance does not inspire confidence as most of the leaders are the same as earlier and there is not much to look up to. This is a state which could potentially be a huge one due to the negative image of the current state government and the 48 seats available.
Starting from his last speech in BJP’s meet in New Delhi Mr Modi has started clearly outlining his vision for India and what all he proposes to achieve once he is in power. The focus on building new roads, rail links, modern cities, creating jobs and taking decisive decisions is what India wants’ at this point of time. Not only in terms of economics, but also in terms of our international relations and Foreign Policies we need to have a tall leader who can protect India’s interest and not a grouping which has prominent leaders that talk in support of Maoists and referendum in Kashmir. Under UPA India’s international standing has gone down substantially with the actions of Obama in the recent diplomatic controversy clearly reflecting that India is not very important in the overall scheme of things. Global Poweress comes with a strong and vibrant economy which I believe that only a leader who is not only non corrupt but also strong and decisive can deliver.
Whenever a country progresses everyone in the country moves ahead. Some people lead in the progress and others follow in the trickle down. As such if the country moves to a higher growth path then it will not leave behind the minorities or any particular community.
Some people that I talk to tell me that I am not for AAP because I am more bothered about the stock markets. That’s not the reality. I am more bothered about the long term progress of India and its potential to be one of the foremost countries in terms of economic poweress as well as prosperity. I really cannot see that happening under an AAP kind of formation or a motley crowd of parties like BSP, SP, Communists, Third Front, and Fourth Front etc.
We in India are at a critical stage today. Either we can choose to rescue India from the clutches of Corruption as well as Dole Out politicians who loot you for 4 years and give something back in the 5th year or choose progress and development. Another 5 years of lost growth will mean that at the end of 10 years we will look behind at a lost decade.

“There comes a time when one must take a position that is neither safe, nor politic, nor popular, but he must take it because conscience tells him it is right.”
― Martin Luther King Jr

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