Alam Srinivas is a business journalist with nearly three decades behind him, working for The Times of India, India Today, Outlook, Financial Express and Business Today. He is the author of “Cricket Czars: Two Men who Changed the Gentleman’s Game”
FOR over two terms (of five years each), Narendra Modi ruled Gujarat like a CEO. At least that’s what experts claimed about his long reign as the chief minister, and that’s what Modi believed in. So, when he took over as the country’s prime minister in May 2014, he was convinced that running a national economy was like managing a business enterprise, a corporate conglomerate, and that this was the right way to do things. Unfortunately, his business lessons and experiences stemmed from his cultural roots, the manner in which the Indian entrepreneurs do dhandha.
Instead of following the professional approach of western companies, Modi adopted the traits of an Indian CEO, more like the family business-owner. Hence, his economic decisions were more akin to what a Gujarati entrepreneur or a Marwari would do, rather than a Bill Gates or Jack Welch. The Indian economy was run more like an Ambani or Adani empire, rather than an Intel, Amazon or Google. Since it was essentially a state-owned empire, the negatives of Socialism and Communism crept in. In effect, he combined the worst of all economic ‘isms’, including Capitalism.
Like a typical family businessman, Modi centralised the decision-making process, and surrounded himself with loyalists, whose raison d’etre was to nod their heads in agreement and say ‘yes sir’. Like an archetypal Indian CEO and owner, he used public money, from the exchequer, banks and state-owned companies, to fulfil his economic whims and fancies. Like a classic Marwari or Gujarati, he used the system, be it economic, social or political, to establish a monopoly. Like a characteristic businessman, his faith in ‘numbers’, whether real or false, was overpowering.
A TOP-DOWN APPROACH
Within weeks after coming to power, the Prime Minister’s Office (PMO) became the most powerful body. All economic files were sent there, and all the decisions flowed from there. No minister, even those who held crucial portfolios such as oil and gas, power, and telecom, had much say. They merely followed the diktats from the top. Some of the senior ministers, like Finance Minister Arun Jaitley, had some freedom, but not when it came to important policies like the annual budget. Hence, not only were the decisions delayed, they turned out to be half-baked.
An example of this was the Goods and Services Tax (GST). Although the single-tax system was debated for years, by as many as three regimes, the final policy was a mess. Within weeks and months, it was changed and tweaked. There were too many rates, and the companies were saddled with too many irrational responsibilities. For example, the onus of paying the GST was put on the company that made the payments, rather than the receivers. Even today, GST is paid within a specific time after an invoice is raised, rather than after the money is received.
New acts, like the one to deal with benami transactions, were passed without much thought. In fact, the law on benami deals was useless because there were other laws to deal with the issue. More importantly, the problem with such transactions is that the government can deal with them only if it can pinpoint and trace them. The act had no mechanism to do this; it only presented the punishment in case the guilty were found. Hence, it has merely remained on paper, and few and rare actions were initiated by the relevant authorities under the new act.
Consider another example – the proposed privatization of the state-owned Air India. Normally, unless it is a distress sale, the price is low, or market demand is high, an asset is made attractive before it is sold. Even a fruit-seller washes and wipes his ware in a bid to woo customers. But the opposite happened in the case of the national airline. Its huge debt base was almost kept intact when it was put on the block. Similarly, the various assets were untangled, as if there was a deliberate policy to make it unattractive. The result: there was not a single bidder for it.
PUBLIC FUNDS, PRIVATE USE
Both public institutions and public money were brazenly used by the prime minister, and PMO, to pursue personal economic agenda. Thus, some of the decisions displayed the wasteful use of the central revenues, and funds parked with the state-owned banks and insurance firms. There were no checks and balances. One man decided, and the others acquiesced. There were no debates and discussions. The prime minister’s wishes, even if well-intentioned, became the commands of the public servants. Hence, national interests were compromised at a huge loss to the nation.
Like the previous governments, the Modi regime used the autonomous government institutions to cover up for their mismanagement of the economy, and the over-optimistic revenue projections. The Reserve Bank of India was asked to cough up huge amounts, as the government decided that it had the right to access the surplus with the central bank. In February 2019, the central bank paid an additional Rs 28,000 crore, in addition to the Rs 40,000 crore it transferred earlier. These demands and payments had earlier led to the resignation of the former RBI Governor, Urjit Patel.
The public sector was similarly bled for the same and other reasons. Consider the example of the once-cash rich ONGC, the state-owned oil and gas explorer. As on March 31, 2017, the global giant had cash reserves of Rs 13,000crore. Within a year, they dipped by more than 90% to mere Rs 1,000 crore by March 31, 2018. More importantly, the company’s debt zoomed almost 25 times between March 31, 2015, and March 31, 2018. To be fair to Modi, a similar thing happened earlier during the UPA-II regime, when cash reserves slumped from over Rs 20,000 crore in 2011-12 to under Rs 3,000 crore in 2014-15. However, the debt reduced too.
Several factors were responsible for ONGC’s meager cash reserves and bloating debt in 2018. It was literally forced by the government to acquire domestic and global assets at huge, sometime higher-than-market, prices. Experts alleged that the oil giant paid too high a price to buy fields in Russia, only because of the bilateral deals personally inked by Modi and his Russian counterpart, Vladimir Putin. Similarly, ONGC had to take over the ailing and controversial Gujarat State Petroleum, which ran up a huge debt and found no oil. In a bid to create an Indian oil MNC, for no reason except to score brownie points, ONGC acquired another state-owned oil company, Hindustan Petroleum, which was financed through loans.
One needs to also remember the long-term implications of some of the grand welfare schemes implemented by this government in a bid to create new vote banks. One of them is the insurance schemes for the poor and lower classes at cheap annual premiums. There is no doubt that they provide huge financial safety to the underprivileged. But it is the state-owned insurers, which will be left holding the baby, when the time comes for the huge pay-outs. By then, Modi will be history. Remember how the Indian business owners, like Vijay Mallya and Nirav Modi, as also scores of others, looted the various public sector banks!
Over the last four decades, ‘managing the system’ is a favourite phrase with the Indian entrepreneurs. The teasing, almost intriguing, the expression means how the businessmen can game the political, economic and social ecosystem to earn mega-profits by scuttling competition, creating huge entry barriers, and building monopolies. Modi did the same. As businessmen used their financial clout to tame politics and society, Modi exploited the economy to enhance his political clout. The former built business behemoths, and the latter a political empire.
Nothing illustrates this better than demonetization. Initially, the idea was to root out corruption through a ban on high-denomination notes, and the targets were the Rs 1,000 notes. But Modi saw that the move could kill his political opponents in a single stroke, if he also banned the Rs 500 notes. The reason: political parties, and especially the regional ones, store huge cash reserves to finance their elections. The ban on Rs 500 and Rs 1,000 notes could empty their moneybags, which it did. The result: a massive victory for Modi in the Uttar Pradesh assembly elections, held a few months after demonetization was announced in November 2016.
Similarly, experts contend that the linking of Aadhaar, or biometric information, to the mobile numbers, bank accounts, property registrations and a number of other things was an astute political move.
Such massive and overall linkages could have allowed the governments to go after any individual or institution that acted against it. As Edward Snowden explained in several speeches, the creation and collection of such metadata by governments enables them to link any person to any event, and thus take strong action against their enemies, both imagined and real.
Only the intervention of the Supreme Court, which said that individual privacy was a fundamental right, halted the linkages in several cases. However, Aadhaar can still be misused by the governments in the future. More judgments will be required from the apex court if the biometric details have to be used properly. For instance, they can be used effectively to ensure transparency and root out corruption in the various welfare schemes for the poor. They can also reduce duplications of names, and the existence of benami names in government schemes.
THE NUMBERS GAME
Most businessmen run after numbers, i.e. targets – for sales, revenues, profits, and share prices (if they are listed on the stock markets). In the current regime, quarterly numbers for listed companies are crucial. They have to be delivered quarter after quarter after quarter, without any respite. Hence, statistics and their use become an obsession with business-owners and CEOs. Their lives depend on them, and the numbers acquire a kind of God-like apparition. If the figures don’t show it, the financial state of the corporations is doubted by the investors.
Ever since he assumed office, Modi became consumed with, and subsumed by, numbers. Everything that he did, every decision he took, had to have a larger-than-life expanse. If financial inclusivity involved the opening of bank accounts for the poor, they had to be in terms of hundreds of millions. In this year’s Budget, the government announced that it had opened 340 million new accounts under its Jan Dhan programme. If insurance covers had to be sold to the poor, it should again be in hundreds of millions. If toilets had to be built, their numbers needed to be huge – this regime has built over 90 million toilets, and declared 550,000 villages defecation free.
The fixation with numbers entered the macro-economy. One of the first things that the Modi regime did was to change the formula to calculate the country’s GDP, only to bump up the numbers. Many experts, including Raghuram Rajan, the former RBI Governor, and Gita Gopinath, Chief Economist, World Bank, have questioned the new formula. Recently, the latter said, “There were important revisions that were made in 2015... That said there are still some issues that need to be fixed and this we have flagged before with respect to the deflator that is being used for estimating real GDP... this is something we have flagged in the past.”
When this mindset, a preoccupation with statistics, numbers, and targets percolates downwards, it can lead to disastrous results. For example, toilets were mindlessly constructed without any attention to whether they will be used or whether there was adequate water in the area, only to achieve the numbers. Bank accounts were opened where the deposits were less than Rs 10 each, and which were never operated, only to reach the targets. GDP figures were twisted and massaged, only to prove that India had the highest economic growth among the larger nations.
Clearly, the Indian CEO and Indian businessman approach to the national economy led to several failures. Modi’s methods worked in Gujarat, as they do work in smaller corporations. However, in the case of conglomerates and nations, the management needs to be decentralized, open, transparent, and professional. All the stakeholders need to benefit.