Modi makes a good beginning
Let this not be a short term measure
By Faraz Ahmad
In Charlie Chaplin’s masterpiece spoof on Hitler, ‘The Great Dictator’ made in 1940, in the midst of World War II, the great dictator Hynkel wants to conquer Austrowitch. But when his Minister for Home Affairs Herr Garbage says it may take another three months, Hynkel loses patience and wants his troops to move immediately, to which Garbage replies, “In that case we should require foreign capital and Hynkel orders: ‘Borrow it, borrow it.”
Garbage: “Bankers have all refused. But wait there is one man who might make it, Ebstyne.”
Hynkel: “Ebstyne! He is a Jew, isn’t he?”
Hynkel: “Hmn! Well let’s think about it. We’ll borrow the money from Ebstyne.”
Garbage: “It might be difficult in view of our policies towards his people.”
Hynkel: “Very well then. We will change our policies towards his people. Tell Commander Shultz all persecution of Jews must cease. At least till we have negotiated this loan.”
Prime Minister Narendra Modi has suddenly put on a very amiable façade. He made an uncharacteristically conciliatory speech in Parliament the other day, reassuring the people about reservation; removed any misgivings about his Government attempts to tinker with the Constitution of India and even had a word of acknowledgement for Pandit Jawaharlal Nehru, the bête noire of the RSS from times immemorial. A day later on November 28, he deigned to give a pep talk in his once a year selfie opportunity to his media propagandists.
After his speech in the Lok Sabha, the Prime Minister beckoned Congress leader, Malikarjun Kharge to come and shake hands with him and rounded off the day breaking the ice with Congress president Sonia Gandhi and former Prime Minister Manmohan Singh over a cup of tea. All to resolve the deadlock on the passage in the Upper House of the contentious Goods and Services Tax (GST) Bill, already passed in the Lower House on May 6.
Incidentally the idea of reforming the tax regime through this GST originated in 2009 in the UPA government and the then Prime Minister Manmohan Singh had taken all the states on board including Gujarat, then ruled by Modi. Just as the Monsoon session of Parliament was to commence in 2010, Singh invited to lunch the then Leaders of Opposition Sushma Swaraj and Arun Jaitley and after the lunch they told the assembled media that per se they had no reservations on the introduction of the GST Bill in Parliament.
The next day that is July 25, however the CBI arrested our current BJP president and the then Gujarat Home Minister Amit Shah in Ahmedabad for his alleged complicity in the Sohrabuddin Sheikh and his wife Kausar Bi’s fake encounter killing by Gujarat police. Immediately Modi sent orders from Gandhinagar and Sushma and Jaitely halted in their tracks. Since then the Bill has been lying in limbo. All of the remaining four years of the UPA government and now a year and half of the BJP government, the GST Bill is deadlocked even after its passage last Budget session in the Lok Sabha because the Government hasn’t numbers in the Rajya Sabha and can’t get anything passed without the consent of the Opposition.
Meanwhile Moody’s, the international Credit Rating Service has, in its latest report, released on the eve of this Winter session of Parliament, prepared by Moody’s Investor Services, questioned the NDA Government’s ability to bring in key reforms. It has put the Modi government virtually on a notice saying that its failure to implement GST and land reforms could hamper investment flows in India. It says, “It seems highly unlikely that the major reforms will get enacted by the Upper House of Indian Parliament where the ruling coalition is in a minority,” adding that, “A failure to implement these reforms could hamper investments amid weak global growth.”
It further said, “Despite overall supportive domestic conditions for the country’s corporates, potential headwinds looms for a loss of reforms momentum.”
Disputing Finance Minister Arun Jaitley’s prediction of India’s GDP likely to touch 7.5 per cent this fiscal, Moody’s has predicted GDP falling below 6 per cent. It also took serious note of the rising inflation notwithstanding this Government’s persistent denial on this score and warned that “exchange rate volatility” is resulting in tight funding environment.
Moody’s concern was not without basis. A report by Kotak Institutional Equities released to the media this week stated that the Foreign Portfolio Investors’ (FPI) holdings in the Bombay Stock Exchange (BSE-200) companies declined from US $ 334 billion in the quarter ending June, 2015 to US $ 307 billion, at the end of the quarter ending September, bringing down FPI holdings beyond 25 per cent. These were offloaded to domestic institutional investors, namely financial institutions, nationalized banks, mutual funds and nationalized insurance companies.
Another report in another national daily has disclosed that just this month, that is November, FPIs have pulled out US $ 1.5 billion. Now this figure is obviously over and above the September ending figure. Though to be fair, in October the FPIs did invest substantial amount in the Indian market. But that barely covered the stock market downslide caused by the FPIs’ successive pullouts in May, June, August and September. Till this report was compiled the FPIs had pulled out Rs 9,823 crore from the Indian stock market which included Rs 6,616 crore from the equity market and Rs 3207 crore from debt sector.
Contrast this with the run up to the 2014 general elections when market hopes ran high on Modi’s ascendance on the Prime Minister’s chair. Again the Kotak Institutional Equities report tells us that FPIs were the biggest buyers of Indian shares in the market rally that began during the run up to the general elections, 2014. The value of FPI stake in BSE listed firms which was running till then around US $ 200 billion suddenly jumped by 50 per cent to touch US $ 300 billion for the first time in Indian market history.
Meanwhile scams like the Rs 6000 crore Bank of Baroda money laundering racket and Minister of State for Agriculture Sanjeev Balyan’s lobbying with venture capitalists to aid his niece Monika Balyan’s funding has brought further discredit to the Modi government, come on the promise of ending corruption and lifting the market mood. And so Modi desperately needs a makeover. In this context getting the GST Bill passed by the Rajya Sabha is of utmost importance to this Government to restore some of its credibility with the FPIs.
Breaking the ice with Sonia Gandhi and Manmohan Singh and making conciliatory noises in the Lok Sabha are healthy signs. Hopefully this will be an onward trend rather than a short term measure to simply cross the GST bridge.