Better-run banks will get bigger share of deposits: Economic Times 13th Nov 2019

With the wide-ranging changes taking place in the banking sector, the status of a deposit holder has also changed and one should be prepared for more. A bank deposit was considered to be the safest avenue for parking funds as there was an implicit guarantee on them. The returns were lower than those on company deposits or other alternative sources of savings, but the underlying comfort made them attractive. The status of a deposit holder has changed over time. First, the saver has been made to pay for various services, including cheque books and enquiries, beyond certain limits which was a shocker to begin with. Deposits are the core of banking and one would expect the holders to get certain benefits. But now, banks penalise a deposit holder for walking into the branch. Second, interest rates on deposits are never the concern of policy makers and the credit policy is focused only on the borrower, and hence at the apex level, these returns do not matter. We are concerned about investments, but take savings for granted. Third, while policy is set based on inflation targeting, the point missed is that real interest rates is a theoretical construct and practically speaking the return on a deposit gets hit by cumulative inflation and not just current inflation on declining deposit rates. Hence, when the statement is made that real deposit rates remain unchanged when inflation comes down, the absolute spending power is denuded. Therefore, the deposit holder gets short-charged on both the nominal return, which goes down and cumulative inflation. Unlike a manufacturing concern which runs on equity of owners, banks run their business on deposits of households. Every time they mess up with loans, they fail in the job of intermediation and hence misallocate resources. But deposit holders have no say in replacing management of banks. With these developments already in place, the new ground rules being spoken of are a greater threat to deposit holders. The first is the realisation that deposit guarantee is actually only up to Rs 1 lakh per person, including all accounts held in different branches. It is, hence, an illusion that a retired person keeping Rs 50 lakh in a bank deposit is safe. While it is assumed that banks will not be allowed to fail, there is legally nothing against the liability being restricted to just Rs 1 lakh. It is not surprising that the DICGC is very profitable as it charges 10 paise per Rs 100 of insured deposit and hardly gets to address claims. Second, with the RBI already instructing banks to benchmark their lending rates to a set of anchors like repo rate or T-bill rate for retail and SME loans, the logical corollary is that it would, at some time, do the same for deposit rates after covering corporate loans. Otherwise, the banks will be at a disadvantage. This will mean that with this relentless pursuit towards lowering the repo rate, deposit rates could crash downwards. Therefore, returns can vary every quarter and this is not very different from the uncertainty in the stock market. Third, the Financial Responsibility and Deposits Insurance Bill, which has been deferred for the time being is bound to resurface at some point of time which is scary. The bill talks of a bail-in clause where deposit holders should shoulder some losses of the bank. Hence, if a bank fails, deposit holders, too, have to bear a part of the cost in the form of haircuts on their deposits. If this is going to be the emerging scenario, bank deposits would no longer be as attractive as say a highly-rated bond or fixed deposit of a corporate. Banks may just be useful to park savings for daily use, while term deposits would shift to other avenues. In fact, long-term G-Secs could be attractive if the idea is to hold till maturity. Further, there is talk of privatisation of PSBs. If this In the new scenario, banks have to be forced to make all disclosures just like an IPO offer document. A credit rating would also be desirable to allow for informed decisions to be taken by deposit holders. Quite clearly, the better run banks will get the funds, while others will find it a challenge. Such a scenario is not really unthinkable based on the direction in which we are moving.

Is the Sensex obsession justified? Business Line 13th Nov 2019

A buoyant capital market does not always translate into improved investment activity in the economy

Tracking the stock markets has become an obsession, even though the movements in indices appear to be contrary to everything that they are supposed to reflect. Slow growth, low employment generation, sluggish consumption, stagnant investment etc are the realities of today. But stock indices spew optimism. Policymakers ensure that their announcements are in sync with the markets. The media spends several hours every day explaining how various stocks are going to move and news pages have experts conjecturing future peaks. The mood is almost always bullish and data is presented to show that the direction is potentially upward.

Just how accurate is the stock market, or the benchmark Sensex, in representing the economy to warrant such attention?

Representing market

The Sensex is believed to represent the market as most references are to this index. There are other indices which come into play, but the focus is always on the Sensex or Nifty and the new peaks of 29,000 (remember Everest?), or now, (beyond) 40,000. In fact, after every major announcement — such as the credit policy, Budget, bank mergers or housing finance packages — all eyes on the next day are on the Sensex to see if things have changed. Often, the impact of these announcements last for a single session, if not a few hours, and then things go back to normal. This raises a question on the obsession with these indices.

From the policymakers’ point of view, the logic is that when the capital market does well, companies are able to mobilise capital, which helps in investment and hence capital formation required for future growth. Therefore, the capital market is a kind of fulcrum for future growth and becomes the prayer book. But data has a different tale to tell.

During the last two years, when the GDP growth slowed down considerably, the Sensex moved from 29,620 (2016-17) to 38,672 (2018-19). There is talk of the GDP growth slowing down further this year to just about 6 per cent, if not lower, while the Sensex has crossed the 40,000-mark and is aiming for 42,000 next.

Certain critical variables have been listed in the table for the period 2010-11 to 2018-19 which should ideally be related with the Sensex. Growth in net profits refers to that of the 30 Sensex companies. The mutual funds and FPI flows in equity are absolute flows in rupees while the GFCF (Gross Fixed Capital Formation) rate is the capital formation rate expressed as a percentage of the GDP. The coefficient of correlation of change in the Sensex is mapped with these variables.

Varying relations

In terms of the coefficient of correlation, the range is between 0.25-0.32, with that of capital formation (GFCF) being negative. The highest coefficient is for net profit growth, which can be expected as it pertains to the Sensex companies.

The relation between Sensex movements and the GDP growth is quite interesting. While the coefficient of correlation is low, there appears to be a better relation in terms of direction of change. In two of the three years when the GDP growth rate slowed down, the Sensex also registered a lower change in growth rate. In four of the five years when the GDP growth rate improved, the rate of growth of the Sensex also increased. The only exception was 2015-16, when an increase in the GDP growth was met with a decline in the stock index.

The net profit growth of Sensex companies is probably the indicator that comes closest to the Sensex movements. Here, the coefficient of correlation is the best at 0.32 (which is not really high), thereby showing that high swings in Sensex have limited association with high changes in net profit. There are aberrations in 2011-12, 2013-14, 2014-15 and 2017-18.

A low correlation does imply that profit is not the sole driver of the 30 stocks; other factors, including expected earnings, the expansion plans of these companies, governance changes, quality of assets (if the company is a bank) etc, play a role as well. Therefore, profits can explain stock market movements only to an extent.

Capital formation rates

However, the surprise here is the link with the GFCF rate of the economy, where the coefficient is negative. This means that a high increase in Sensex is associated with low capital formation rates. Hence the argument that the stock market is linked with investment activity is negated.

As a corollary, the premise that giving incentives to the stock market helps in investment is not correct. The conundrum is easy to explain. The Sensex comprises only 30 stocks, of which 12 are in the banking and IT space, where there is limited investment in capital. The rest of the companies can invest, but have sectoral constraints.

The relation with mutual funds, where AUMs tend to increase, has not been very sharp; this is surprising. The same holds true for FPI investment flows into equities, where the correlation is low at 0.28.

Hence, even two entities that invest in the markets do not have a strong linkage here. In fact, 2015-16 appears to be the turning point for FPIs, which otherwise related well with the Sensex changes. Subsequently, the relation severed.

Therefore, while one can see some signs of relationship — albeit feeble — between the Sensex and other economic variables, there is reason to believe that even on a long-term basis there are extraneous forces driving the indices. There is definitely no set method to this madness.

RCEP: India won’t get a sweet deal: Financial express 11th Nov 2019

While there are talks for looking more towards the US and Europe to sign such agreements, getting these countries and blocs on board won’t be easy either

India has once again displayed its macho image by walking out of the RCEP, keeping domestic interests in mind. Earlier, a similar position was taken at the WTO, and, more recently, with the US. This is a change of image from the past, and shows that the country has the strength to take a firm position on trade issues. More importantly, as India is a strong economic power, a powerful message has been conveyed to the rest of the world.

The Ricardian theory of comparative advantage states that countries should specialise in production of commodities where they have a comparative advantage in terms of cost, and import those where they don’t. This leads to an optimal solution. But the world is not that simple; generally, countries produce everything depending on their social structure, economic distribution and political motivations. In case of commodities like oil or gold, there are few producers and many consumers, thus, there are only a few options. Rarely does a large oil producer also import oil. Besides the prices have been more or less fixed via economic structures, which are formal. But for several other commodities there are both exports and imports. Besides, the overarching motivation for governments is to protect domestic industry.

There is a lot of talk of pushing forth India’s exports; the problem, however, is that they tend to be concentrated in less price-elastic goods, which are driven more by global growth prospects. While some suggest weakening the rupee to boost exports, anecdotal evidence shows that this hasn’t worked. If we are serious about pushing our exports, India needs to adopt an open door policy. It should also try removing bottlenecks. More important, countries should also let our exports come in. Curiously, we face tough competition from countries like China, Sri Lanka, Bangladesh and Vietnam in areas where we have a comparative advantage. Against this background, free trade agreements (FTAs) make sense.

The WTO is supposed to be the biggest FTA involving over 160 countries; all members agree on certain norms on movement of goods, services and investment. The idea is that elimination of quotas and reduction in tariff barriers would lead to materialisation of an optimal solution. This has seldom worked smoothly. WTO has been one-sided when it comes to services as the Western world is against immigration. Ironically, the developed world does not mind flooding emerging countries with their investment and goods. Therefore, the WTO solution has always been a mirage.

Now, let us look at RCEP. When 16 countries covering a large geography in terms of population and size have to negotiate, there would always be varying interests. It can never be a zero-sum game for everyone, even though on an average all countries would be better off. India is right to play tough while negotiating on imports in the farm area or textiles, as agreements like this are prone to encourage dumping. But, to get the benefits of freer entry into other countries, India has to be open to more imports in goods which may be lead to a direct competition with probably the most underprivileged class, i.e., farmers. Also, the choice of year for benchmarking will always be a bone of contention. Each country would like to bat for the year that is most convenient.

The fact is that all countries subsidise various sections of the economy based on social and political requirements, this trend is more prevelant in agriculture. Therefore, costs and prices tend to be skewed. Also, every country wants to protect their farmers as they constitute a big constituency. Dairy products or other agro products entering through the FTA window can create problems of survival of local communities. Thus, it is natural to have resistance to these bilateral and multilateral agreements. India puts export restrictions on farm product, which is not the case for other countries like New Zealand. Hence, there will always be such instances of competitive pressures.

So, is India right in walking out of the RCEP? Sovereign countries have a right to move on if they do not acquiesce to the terms, though ideally one would not go to sign the agreement and then withdraw. The spade work should have been done well in advance. Besides, walking out may not be the best way; negotiating agreements, which are serious in nature, requires a lot of diplomatic maneuvers. In political parleys discussions go on and diplomatic ties are maintained till the end, the same holds true for economic agreements. Walking out of the deal signals a message of intransigence, while keeping talks alive adds a strong diplomatic touch to a firm position being taken.

An argument that is often given is that the 16 nation group includes Asean, which is anyway not very significant in our trade basket. If this was indeed the case, there was little need to prolong the conversation. India needs to strike such agreements with various countries in different geographies to leverage mutual advantage to grow exports. While there are talks for looking more towards the US and Europe to sign such agreements, getting these countries and blocs on board won’t be easy either. Europe has been going through tough times and the US has been targeting India on certain trade issues.

More importantly, the world economy has been through a rather long phase of slowdown with few signs of an imminent turnaround. The pace of global trade has gotten truncated. Trade growth has been around 3.2% per annum, post the financial crisis. Several nations which are dependent on exports have gone into a tailspin. Any idea of trade talks with groups would invariably be directed at enhancing their own markets while keeping others out—typical of such phases.

RCEP composition shows that the ASEAN nations are export-oriented economies and countries like Japan and China, owing to limited domestic demand, have become more dependent on foreign trade. India has had an advantage of being fairly insulated as growth has been driven primarily by the domestic forces. Therefore, under the prevailing conditions, it would be hard to have our way in most trade agreements as every country would be pushing to leverage the deal which increases their exports and limits imports. The path along will surely be uneven.

Big Billion Startup | An engaging account of genesis and survival of Flipkart: Financial express Nov 3 2019

et up by Sachin and Binny Bansal, Flipkart showed how engineers could come up with a unique idea and make it happen.

This is a fascinating book on the story of Flipkart which narrates the tale with panache. It is like a ball-by-ball commentary on all the steps that led to the creation of this rather amazing company to the time Walmart took over to make it a greater force in the e-commerce space.

The story is exciting because it is in a very happening business which could be the future of retailing. Set up by Sachin and Binny Bansal, it was a demonstration of how engineers who were not really brilliant while studying in IIT could come up with a rather unique idea and make it happen. They not only germinated the concept, but took it to fruition and made it profitable in the first year of operation. Like all successful start-ups, Flipkart started off from a residential flat and expanded to premises in prime areas in Bengaluru.

The story is very instructive of how to create a business, as it involves forging strong backward integration that goes into such a project as it traverses the supply chain. Flipkart sold books to begin with, where employees ran and procured them to satisfy orders. Next they went on to strike deals with distributors and publishers. Once they realised that there was need to be in control of the logistics as volumes increased across product offerings, there was need to have their own set-up and ‘ekart’ came into being. Getting into warehousing and logistics posed a challenge of not contravening laws, as they had permission for being a marketplace and could not actually store goods and had to only put buyers and sellers together. How they got around this challenge has been explained well by Dalal.

Funding of such ventures is a challenge to keep such not-so-profitable ventures alive. That’s how Tiger Global enters the story, when capital comes in and becomes crucial in this enterprise as it went on to play a role in choosing the management, which finally led to Sachin Bansal moving out. Capital allowed for expansion of the array of products offered, of which smartphones were the major driver. Here, too, tying up exclusive contracts with Xiaomi and Motorola was a strategy to capture market share, and this led to their great billion dollar sales.

Along the way one gets to know all the moves made by the company, such as easy returns with no questions asked, which also had associated issues of frauds by dealers who created dummy returns to claim damages that were offered by the company. The problem gets magnified when the array of products offered increases to include apparel, toys, perfumes, etc. But Flipkart actually set the rules by making such offers, as the competition had to follow the same to remain in the game.

Then in any such story there are interpersonal relations that have to surface and here the author spends a lot of pages explaining the conflict between Sachin Bansal and Kalyan Krishnamurthy, who was the nominee from Tiger Global. As the two did not get along, the latter left, but was reinstated later when the former exited. The limitations of the innovator and promoter come alive as the company expands when professional leadership was required in the growth stage. Dalal also takes us through the pitfalls of the idea of abandoning the website and moving to only the app, which impacted sales and supposedly gave Snapdeal an advantage. In such a marketplace there is a virtual oligopoly and it is market power in reverse where the one that delivers the best price and service to the customer stays ahead.

Are there any lessons that come out from this story? The first is that one need not be extraordinary to achieve something great. Competent engineers can build an enterprise which was quite revolutionary where they set the rules of engagement. Second, the entire business of a new start-up is experimental and everyone is learning every day as nothing can be anticipated. While new entrants have templates on what should be done, the inventor has no such signpost and, in a way, sets these rules. Third, to sustain and grow the enterprise funding is important and hence the model has to show potential even if not profitable and has to be strong. Fourth, with scale, there is need for professional help or rather leadership and while the promoters may not like to pass on the baton, it is necessary after a point of time.

Dalal’s book will go down as special as it brings to the fore the story of this remarkable enterprise that has in a way revolutionised the way in which we buy and sell goods. Now around 12 years old, consumers have access to a new experience that has, in fact, questioned the brick and mortar model, which may have to also reinvent itself. Just like how disintermediation gets rid of intermediaries, the ecommerce model shows how to shorten the value chain by getting distributors in touch with the consumer and provide a wider array of products that can never be replicated in a mall.

Ease of Doing Business rankings: Rising through the ranks: Financial express Nov 2nd 2019

argeting the World Bank rank is a very good guide on what governments should do to ease the business environment. It actually sets a template to be pursued so that policies are focused, and effective.

Improvement in World Bank Doing Business ranking has been one of our stated goals. Against this background, the advancement to rank 63 is satisfying. The objective is to improve this rank further to under-50—this will be commendable when reached. The broader question is whether this has really helped to increase investment flows, and if not, does it serve any purpose?

The Economist has always maintained that India, China, and Russia have made this achievement their sole goal, putting in all efforts to work on the formula that goes into giving this rank, and is, hence, against its spirit. However, a better rank, just like an improvement in the sovereign credit rating, enhances the stature of the country in the global arena. Is there anything wrong in this approach? Probably not, because as the World Bank uses a common yardstick for evaluating countries on their ability to improve the doing business climate, any work done should be welcomed. Hence, if we have moved up from rank 130 in 2015 to 63 in 2020, it is certainly something to be proud of. Besides, it also needs to be accepted that high ranks in doing business cannot be the preserve of developed economies alone.

The score looks at 10 essential indicators when ranking a country, and includes parameters such as starting a business, getting necessary permits, credit, protecting investors, taxes, foreign trade, insolvency, etc. Contracting with the government is a new variable mentioned this time and will get included in subsequent surveys. While individual ranks are provided for each parameter, the consolidated rank is based on the weighted average score.

Our rank today is very good when it comes to protecting minority investors (13), getting electricity (22), getting credit (25), and construction permits (27). There is work to be done in case of enforcing contracts (163), registering property (154), and starting business (136). With the IBC progressively catching on, and GST getting into place, there is evidently reason to believe that the target of 50 should be achieved in the next couple of years.

The World Bank admits that there are limits to this methodology because it covers limited cities in a country, and, hence, cannot capture all aspects of regulation in federal structures. Therefore, if Mumbai and Delhi are the cities chosen, things could be very different in the rest of the country—the primary cities or centres are taken to be representative of the entire country.

There are two aspects to this rank change. First, targeting the World Bank rank is a very good guide on what governments should do to ease the business environment. It actually sets a template to be pursued so that policies are focused, and effective. Very often, due to legacy issues, one may not be aware that there are, say, 50 permits needed for getting a construction go-ahead. Once the template is used, the government can consciously remove those that make little sense, and, hence, improve the environment for entrepreneurs. In the absence of such a tested template, governments may often skip certain steps due to ignorance.

The second aspect is the impact of the same. It has been observed that the overall investment rate in the country has been virtually stagnant at 28-29% after being at a level of 34-35% before the slump began. Hence, if one juxtaposes the continuous improvement in ranking on this scale to the actual investment taking place at the macro level, there is not much of a correlation. This is not surprising because the decision to invest depends on several practical factors, which cannot be part of any formula. Even if demand conditions are set aside, for example, while India scores well on the parameter of getting credit, which is based on the institutional set-up for the same, banks may not be willing to lend for investment due to the NPA issue, or the ALM mismatch, or higher risk perception. Therefore, even though there are no physical barriers to borrow money, the willingness to lend is missing. Also, while a doing business formula captures the banking set-up for investment, the bond market, which is still not evolved to cover sub-investment grade projects, matters.

Similar parallels can be witnessed in other parameters, too. Our rank in terms of resolving insolvency has improved manifold to 52 due to the implementation of the IBC. The World Bank scale would look at the structure put in, which is fairly comprehensive, and covers all aspects in terms of having a process in place, including time taken for resolution, and addressing insolvency at the limit. However, at the practical level, if cases exceed the 270 days limit, or get stuck in the litigation process, or the realisation rate falls sharply, the success of resolving insolvency would be low relative to the structure created. But, the ease of doing business score does not capture this aspect.

From a global perspective, it has been observed that India has had a very steady flow of foreign investment—both FDI, and FPI. Improvement in overall rank does matter as these investors are constantly assessing the environment, and any investment in a company that has plans involving permits is of high priority for them. Similarly, investors would also be looking at the issues of enforcing contracts, and resolving insolvency. FPIs would be interested in the issue of protection for minority investors as this is an indicator of how markets are governed. Therefore, the individual scores and ranking of these parameters will be studied closely.

Hence, the process of cleansing the system of unnecessary hurdles is essential, and does help in the long run. It does lower the cost of doing business, and would, hence, make projects more profitable, especially as a number of these investments involve both time, and costs. Following the World Bank formula should, however, not end in just bettering the rank but also ensuring that the same is translated across all states and cities, so that investment gets fair treatment everywhere.

Two things need to be persevered with. The central government has already got into the act of getting states to improve their own business environment. This removes disparities, and, in a way, the business arbitrage that exists, where some provinces are more open to investment than others. Bringing about competitiveness among states is a good idea so that they clean up their houses to attract private investment. Second, the government can now target bringing about changes in the policies/regulation regarding those parameters where we do not do well. This will help lubricate the environment that supports future investment.

Economy can’t handle more slips: Free Press Journal 1st Nov 2019

All data points indicate that there is a distinct slowdown in the economy. The negative growth rate in the core sector at 5.2% in September is the lowest since the new index came into being, which is a setback as it indicates that infra is faltering. The government has been the main driver of infra and the fact that it has turned negative is worrying. While it is true that the extended monsoon has come in the way of this sector, the fiscal pressures on the government could cause some cutback by the end of the year. The RBI has lowered the forecast for the year to 6.1% and other agencies are looking at a number less than 6% which is psychologically disturbing.

Are there any signs of a revival? There have been two developments which are very positive but also carry riders. The first is a good monsoon and expected kharif crop which carries good news for the industrial sector as the fortunes of the rural economy are linked to these prospects. The Ministry of Agriculture expects a good crop this time across most commodities which can ignite a revival. However, a lot also depends on how prices move and this where is there is a conundrum. A good crop normally means a decline in prices as excess supply comes into play. This in turn means that incomes of farmers do not increase substantially unless there is a large increase in output. Therefore there is no assurance on the rural demand story as yet. In fact even the increase in MSP for both the kharif and rabi crops this year has been quite subdued.

The second bit of good news is the success of the online sales of e-commerce companies this time. Both Flipkart and Amazon along with Snapdeal have reported large increase in sales. The timing has been right with the festival season and what is significant is that these companies have argued that their sales have come from the Tier 2 towns which show both penetration and more widespread consumption. However, the rider here is that often it has been seen that high pace of online sales substitutes or cannibalizes those of brick and mortar shops. It needs to be seen if this happens this time too.

These two phenomena are important as they would provide a picture on how consumption is faring and whether there is any turnaround. Other indicators like corporate performance and employment are still ambiguous with no clear picture on whether spending power has been created. The average capacity utilisation rate for industry has come down again in June and this means that there is less incentive for further investment at this point of time. In case consumption does pick up over the next few months, this can change, leading to a revival in investment.

How can one then interpret the slew of measures that the government had announced over the last two months? Most of the measures announced were related to unclogging the system to ensure free flow of business with focus on housing and SMEs. The real big bang reform was the reduction in corporate tax rate. The estimate of revenue foregone was Rs 1.45 lakh crore, which if it materializes should mean additional resources with companies. While this push has been commendable it is not clear if the companies would actually invest these savings or have higher dividend payouts. This is a gamble taken by the government which will definitely help to spur investment in the medium term but may not yield results this year.

Therefore, a lot depends on how these incremental changes work their way through the economy. It looks unlikely that the government will contemplate any further changes in the individual or capital gains tax tables as the revenue loss will not be bearable. Already the concessions on the GST have had a negative impact on collections which tend to be volatile. Hence, the recovery path will be gradual and the important thing is that there should be no slippages from hereon. Two areas are of concern.

The first is the capex plan of the government which is critical in moving the economy. Even though a sum of Rs 3.3 crore is quite small to drive the economy, it cannot be compromised. The other is the state of inflation presently the CPI inflation number is just at 4% and food inflation has been the worry and crossed the 5% mark last month. There still seems to be no respite on this score. If it does start moving up, it can have an impact on the path of monetary policy. The RBI has taken an accommodative stance so far meaning thereby that there will be no increase in rates. But if inflation moves up sharply, there may have to be reconsideration. Given that growth is also weak right now, it will be a hard choice that has to be made.

Reset | Rather radical solutions to bring the economy back to shape: Financial Express 27th Oct 2019

wamy claims that he got India a -billion IMF loan during the Chandrashekhar regime

Subramanian Swamy has established himself as a personality with extreme views, which he is often able to defend with consummate ease. One may not tend to agree with him, but for sure he germinates ideas that may find acceptance when the time comes. Hence when one reads his book Reset, it is quite thought-provoking.

As the title suggests, he has an agenda for changing the economy that has slipped quite badly in the past few years. Such things have happened in the past, and the economy has been able to rebound due to its inherent strengths, or what the more fatalistic people call resilience. He starts off by taking us to the period 1870-1947 when British imperialism decimated the Indian economy as the Empire worked to exploit the colonies. Blaming the British for everything that went wrong is passé, and hence rarely do we have commentators dig through history. But Swamy does this with panache.

After much immiseration during the British rule, the country went through the yoke of socialism, as our leaders, according to the author, got the plot wrong and so we slipped to the clichéd Hindu rate of growth during this period, when the rather flawed Soviet model was pursued. While the Eighties saw some change at opening the economy, we had to be pushed to embrace reforms in the Nineties. It is here that he enlightens the readers that the entire reforms package was his creation and that while the nudge came from IMF, it was his plan that got accepted. Hence, contrary to what we hear of other political and economic stalwarts like Manmohan Singh and Yashwant Sinha being given the credit for reforms, Swamy claims that it was his idea in the first place. He mentions that he also got India a $2-billion IMF loan during the Chandrashekhar regime when he suggested to the then PM to allow US to refuel when combating Iraq over Kuwait.

This done, the author analyses a lot of data to compare the economy at different points of time during this period when the economy really grew. Reforms were about easing controls and shackles and replacing them with new structures. While one gets the feeling that Swamy is pro-markets and reforms, there is a lot of emphasis that he has placed on farming and the SMEs.

Fast forward to the present and Swamy does some straight talking. He calls Manmohan Singh an “accomplished economist but a marginal figure of no consequence in his own government”.

The UPA government, according to him, had some of the seniormost ministers “committing gigantic corruption”. He describes the present PM, Narendra Modi, as “not being a man of letters but having grip on microeconomics though not macroeconomics”. He admits Modi is very popular and honest and wants to do a good job, but writes that his “lack of academic background has made him dependent on his friends and ministers who never tell him the bitter truth”. He praises the PM for being a domineering person with no political competition. But the problem is with his advisers, who are “unelectable and have no clue about the economy”. He also takes a strike at the timid economists appointed by the PM to top posts with ‘huge perks’, who end up “telling him what he wants to hear”.

He says all this has resulted in two big blunders that have pushed the economy into the present mess. These are demonetisation and GST. Here he may find more supporters, as it is generally agreed that the former was not such a good move, while the timing of the second could have been better. He then brings in the more controversial former CEA’s research, put forward after the latter’s leaving the government, on GDP numbers and uses this to prove that the economy has slipped badly in the last few years. He has also used some work done by Rathin Roy to buttress his belief that the economy is in a bad shape.

Is there a solution? Yes, and his alternative script is novel and stunning. Abolish income tax so that people save more, which can be used to push up investment rates from the abysmally low figure today. Household savings have crashed, thanks to demonetisation and other warped policies. Bank deposits should give at least 9% (wonder how RBI, banks and companies will react). Next is to fix the currency to `50 to a dollar (coming from someone who claims to have brought in reforms, this is a surprising change in ideology). P-Notes need to be abolished to bring in $1-trillion black money (this number has lost its credibility, what with various numbers being spoken of but little coming out). And, last is a rather bizarre suggestion to print currency to finance infrastructure and keep aside any rules on fiscal side.

Therefore, he says India can match China and even challenge the US if we try hard. This may sound like a different kind of hubris when the book ends on such a note, considering that even today there is a feeling that all is well in the economy, and the World Bank and IMF data is used continuously to show that India is the fastest growing economy and that there can be nothing fundamentally wrong!