Modi’s Model Not A Scalable One

Modi, with his near contemptuous disdain for minorities, together with his strenuous efforts to build a personality cult, has more or less ruled himself out of the game. Can a softer narrative rehabilitate him?

The Gujarat electorate has thrown up a conundrum for India that raises deep philosophical questions about the future of its polity. Firstly, electoral compulsions have once again prevailed over the rule of law. The difference between brute mobocracy and a fair democracy is the rule of law. Secondly, Gujarat has again tacitly approved a rather contemptuous message to its minorities that says you are irrelevant. This has implications for national politics. For these reasons alone Gujarat’s political choices need careful scrutiny.

It may be useful to recall BJP’s general electoral strategy of polarisation along the communal fault-line to generate a larger share of votes for it. I am by no means implying the Congress strategy of polarisation along caste lines is less harmful than BJP’s polarisation along communal lines. Both are terribly debilitating for India. My effort here is more geared to showing why Gujarat cannot be scaled up to India.

For the purposes of a crude but simple model that helps explain the strategy of polarisation, consider the total electorate to be made up of four blocks. These are Upper Castes [UC], Middle Castes [MC], Lower Castes [LC] and Muslims [M]. The size of these blocks varies from State to State, district to district, town to town. Furthermore, there is a significant difference in the size and composition between urban and rural areas. Muslims in particular cluster around towns and cities and shun rural areas unless they happen to have a significant majority themselves. For the purposes of understanding the dynamics, assume UC is 20 percent, MC is 40 percent, LC is 20 percent and M is 20 percent. This roughly corresponds to the caste composition of the Hindus that one observes in practice.

An increase in the degree of polarisation works differently on the four blocks. A working political assumption is that UCs tend to polarise favourably towards the BJP, LCs and Muslims against. MCs are where the real battleground lies. Therefore the real gain or loss from an increased degree of polarisation comes from the MCs. The other groups are more or less committed in their preferences.

The above configuration, the very back of the envelope, gives the BJP roughly 30 percent of the vote without any polarisation. With maximum polarisation, the vote percentage goes to about 40 to 45 percent. Thus, the real battle for the BJP is to find an emotive issue that polarises the MC into voting along communal lines. It helps the BJP to have MC leadership at the State level to gain some extra leverage. Ever since the Ayodhya affair, the BJP has pursued the same electoral strategy without any change.

In Gujarat, Muslims constitute no more than nine percent of the population against a national average closer to 18-20 percent. Other minorities in Gujarat are insignificant at less than one percent. This changes the composition of the Gujarat electorate to the BJP’s natural advantage. Without any polarisation, the BJP comes in with a 40 percent share of the vote compared to others (including Congress) at something close to 30 percent. No wonder, therefore, Gujarat has traditionally been a BJP stronghold. Note issues and electorate’s mood changes from election to election. What we are taking of is general tendencies. The fact is the BJP does not need polarisation in Gujarat to win. It needs that outside Gujarat. Therefore, Gujarat is a model to be sold to the electorate outside Gujarat — preferably in a different garb — more development rather than naked polarisation.

The basic arithmetic changes drastically once you step outside Gujarat. Firstly, the Muslim vote aligned against the BJP jumps to 20 percent. The degree of polarisation required to offset that is much higher because the BJP needs to get more than 50 percent of the MC votes in order to win as opposed to 25 percent in the case of Gujarat. Moreover, extreme polarisation generates a backlash in the lost UC vote share. Under such circumstances, the BJP is under a compulsion to find a MC leader well disposed to its ideology, who can pull in the additional votes necessary to put together a winning combination. As we see from history, the BJP has done well in States where MC leaders lead it. Modi himself is one such leader, which sort of seals the arithmetic in Gujarat for the BJP. The same play was evident in UP, Karnataka and the BJP alliance with Nitish Kumar in Bihar. When the MCs have their own leader of stature like Mulayam or Nitish, the BJP just cannot find the winning combination on its own, no matter what the degree of polarisation its ideologues drum up.

With Gujarat not being scalable to the rest of India, what options does the BJP have to capture power?

If the BJP is to be the main player in a winning coalition, it needs a degree of emotive polarisation. However, that by itself is useless without an alliance with the other MC leaders. That is the basic reason why we find ourselves in an era of coalition politics. The BJP just cannot win on its own steam given the rival Congress strategy of polarisation along caste lines. India is locked into divisive politics of one sort or the other.

If the Gujarat model is not scalable, what are Modi’s chances of leading the assault on Delhi? Nitish Kumar and other MC leaders like him will find Modi’s creation of a cult around himself too hard to swallow. Furthermore, aligning with Modi’s hard Hindutva will lose them the critical Muslim vote on which they depend to keep the Congress at bay. Given Congress’ strategy of coalition building, the BJP will have to find leaders acceptable to its potential coalition partners in order to win. And Modi, with his near contemptuous disdain for minorities, together with his strenuous efforts to build a personality cult, has more or less ruled himself out of the game.

Can a softer, more balanced narrative rehabilitate Modi after his power struggle within the Sangh Pariwar is settled in his favour?

Modi faces stiff competition from a gaggle of BJP national level leaders but few of them have his electoral reach or access to corporate war chests. The latter is critical in the BJP because central leaders have no separate access to resources that are needed to reward corporate generosity. Their funding comes entirely from regional satraps like Modi.

Furthermore, it is not clear that the Brahmins of Nagpur are ready to surrender their vast cultural organisation to a MC leader like Modi. Note that the BJP has no organisational muscle of its own. It depends more or less entirely on the cultural reach of the RSS and its cadres to pull in the voters. The RSS is the political party of cadres and BJP the political party of leaders. The latter is nothing without the former. Modi has supplanted BJP/RSS cadres with his own people in Gujarat. Will the Brahmins of Nagpur risk losing their only crown jewel to a relative outsider? This is not a question to be taken lightly. Whatever be its merits or demerits, the RSS remains one of the most potent political organisations in India.

Much of Modi’s obduracy towards minorities is predicated on his need to win the battle for supremacy within the Sangh Pariwar. As a shrewd politician with an eye on Delhi’s throne, he would have made the appropriate noises of remorse and regret for 2002 long ere this but for the need to keep his firebrand supporters by his side. Modi needs to win over either the RSS or his rivals in Delhi to emerge as the undisputed leader within the Sangh Pariwar. Without one or the other, he cannot win. This triangular contest is what constrains his emergence as a national leader in his own right.

Modi has various other options open to him, one of which is to be less aggressive and perhaps join the collegium of the BJP leaders in Delhi, become a team player and bide his time. Provided he mellows, the BJP could then use him as the polarising factor to lead the Hindutva charge for power. If Modi were to consent to play Advani to a more acceptable BJP leader like Vajpayee, he would give BJP the chance it needs to build a winning coalition with MC leaders.

Is Modi really larger than his image? If you find Modi retaining his CM’s post in Gujarat and consenting to work for the greater good of his party, you will have your answer.

Capitalism Needs to Reinvent Itself

“There is a large and growing wealth disparity and I think it is unhealthy. The lower levels of the pyramid do not have enough money to buy things and keep the economy growing.” That was Steve Morton, director in a major broking firm, speaking at Davos. Translated into plain English, what he is saying is that the incomes accruing to the 99 percent are insufficient to sustain consumption at a level that ensures modest growth in GDP. We have to rebalance income distribution or sacrifice growth. It is not just a question of egalitarianism. Income inequality has hit a fundamental economic constraint. To sustain consumption at a level that permits growth, the 99 percent in the pyramid must have a certain minimum share in income or growth halts.

An analogy might help explain this constraint. Imagine a tribe that depends on hunting to eat in a hunter-gatherer setting. It has a star archer who takes the final shot at the deer. The others hunters help locate the herd, shoo it into place for a kill and help in many other ways. When it comes to meat distribution, the star archer takes most of the meat, leaving little for the others who helped. In such a case, either the archer will be replaced or cooperative hunting will end. What two-thirds of the captains of capitalism gathered at Davos are telling us is that such a situation now prevails in most of the developed world. They have not rediscovered equality. Income distribution has become too skewed in favour of capital, as opposed to labour, and must be corrected to restore GDP growth.

Around 70 percent of the 2,600 delegates gathered at Davos not only agreed that capitalism was in trouble but felt government intervention was imperative to restore a healthy balance to income distribution. The average income of the richest tenth of the population in the Organisation for Economic Co-operation and Development (OECD) countries is now about nine times that of the poorest tenth according to an OECD survey. There is wide support for Obama’s call for all making a million or more per annum to pay as much tax as the median middle class US household, an idea first mooted by Warren Buffett. That such a tax may help pay government debt is a bonus. The primary purpose is to put more purchasing power in the hands of the 99 percent. Capitalism without democracy cannot work. If the lower levels of the pyramid do not have sufficient incomes to sustain a growing economy, then enlightened self-interest, rather than a desire for equality, dictates that their share in incomes be increased. What the Occupy Wall Street movement is telling us is that democracy is simply underlining an economic truth.

Few people at Davos have kind words to say for banks, although most agree that well capitalised banks with strong earnings are a must for an economy. The Davos crowd is not going to tell us that the merger of deposit-based banking with investment banking was basically a device to enable bankers to use depositors’ money to bet on markets, something that caused the 1939 depression and was duly repeated this time. It is a measure of the bankers lobbying power that a plan to segregate the two was defeated in the Congress. Without such segregation by law, the banking crisis of 1939 and 2007 will only increase in frequency, causing chaos. Bankers will use short duration deposits to lend long or make bets relying on implied government guarantees. There is simply no case for allowing banks to speculate with depositors’ money.

Davos has not touched upon a major theme that necessitates a fresh look at capitalism as an economic model. In the late 19th century, agricultural productivity increased so dramatically that it could no longer absorb the available labour gainfully. This surplus labour just fell out of the system causing misery, poverty, migration and so forth, before innovations like the steam engine, etc, gave rise to new products. Industry was then able to absorb surplus labour from agriculture into manufacturing. The entire 20th century has been one great story of productivity growth in manufacturing that has enabled unimagined prosperity for billions compared to what came before it. We now face a similar crisis in manufacturing as that faced by agriculture at the end of the 19th century. Manufacturing cannot absorb even a fraction of the people joining our labour force. Apple for instance has sales comparable to India’s GDP but employs only 68,000 workers. We need another revolution in what we now call ‘services’, but we really have no idea where the required innovations and scientific breakthrough(s) will be coming from. Clearly, capitalism must keep an open mind on required changes to the system. Some thinkers in the past like Marx et al, tried to fashion an economic model based on a static agrarian society just as society itself was transitioning to industry with an entirely different dynamic. Capitalism must not fall into a similar ideological trap. It needs to reinvent itself for a post-manufacturing economy, whatever that might be.
Capitalism may well be sitting atop a deeper transition in the underlying economic structure as non-tradable service industry products replace manufacturing as the main engine of growth and employment. But it has by no means failed. In fact, if one combines the US economy with that of China, then over the past 20 years or so, both economies together have lifted tens of millions of workers from subsistence wages to the burgeoning middle class. Yes, there has been a shift of wealth from the US to China but that only speaks of the efficacy of capitalism rather than its failure. Free competitive markets in labour and capital, and free trade remain our best bets in terms of staying open to new ideas and carrying on the existing businesses smoothly. Free and open competition between players, whether capital or labour, firms or workers, will remain central to ensuring against stasis.

Nevertheless, every tenet and assumption in our model of economic development needs to be thoroughly re-examined and validated. For too long we have not really asked the economists to explain where aggregate profits of firms in a modern economy come from. There is no adequate, widely tested and accepted theory of aggregate profits in Economics. That alone should make capitalism shy away from making a case for completeness. In many other areas of economic theory, such as assumption of efficient financial markets, free competition at the firm level and attitude to risk taking when private losses can be externalised to society or government, there are distortions that have gone unexamined even as technology has wrought humongous change, invalidating some traditional concepts. Unfortunate that Davos will not be the place where one looks for answers to such questions.

The crisis of 1939 brought far-reaching changes in the intellectual tools that policy makers used to manage economies. We have lived with those tools for well over 60 years. With another unsettling once-in-hundred-years transition from manufacturing to services underway, we can ill afford to defend existing concepts in a doctrinaire fashion. It is essential to reach deeper into the basic concepts and re-examine their relevance and applicability to the evolving reality of our world. The band aid being applied through stimuli and winding down of debt are unlikely to suffice for the problems that lie ahead. It is time for everybody to put on his or her thinking cap.

FDI in Retail or a Agricultural Reforms?



“I sell gobhi [cauliflower] at Rs 5 and potato at Rs 1 per kg from my farm. If you guys want to pay what you pay, fight the FDI in retail,” tweeted, a retired Lieutenant-General of the Indian Army.

The BJP’s main support comes from the merchants in small towns who dominate commerce in the town’s economic life. They own the wholesale trade, dealerships, large shops, and a factory or two that may be around to process agricultural produce. Historically, the merchant class survived Muslim & British rule intact. Both had no interest in destabilising the local trade as long as taxes were received on time. Indeed the rulers were kind to them and did much to establish markets & trading infrastructure in order to facilitate trade & commerce. While there were some selective favours to Muslim traders under the Mughals, but by and large, the merchant class was not harassed on religious grounds except under Aurangzeb for the Islamic tax, called the “Jazya”. Under the British Raj, some created enough capital to transition into manufactures such as jute and cotton textiles etc. Thus while the merchant class survived the alien rule rather well, it was also highly nationalistic and was keen to see the British vacate business lines in their favour. The merchant class’ right-wing nationalistic credentials are well grounded in our historical experience.

Independence saw the class prosper as much of the cheap British imports that held profits down were eliminated. Further, exports at depressed prices were also gradually phased out. For the merchant class therefore, independence came as a big boon. Sadly, independence was quickly followed by Nehru’s Fabian socialism that imposed a excessive controls on trade and commerce, ranging from compulsory monopoly procurement to direct price setting and even food rationing. Much of this imposed onerous costs on trade and was seen as an unjustified imposition. The merchant class was always numerically small, though moneyed and powerful. So it took to the BJP as its protector against the ruling Congress party that was imposing the controls in the name of socialism. Hence, the BJP’s nexus with the merchant class has a valid historical reason grounded in economics. The BJP espoused their cause for liberalisation from controls. Hence, the party still carries the halo of a right-wing liberalising party. But is it right-wing and liberalising anymore?

Liberalisation by the Congress in the 1990s changed all the political equations, producing profound changes in the polity. Some of them have still not been recognised fully. With liberalisation, Congress became the party of economic reforms, although it remains home to some of the most ardent Marxists. Congress Marxists, exemplified by Sonia Gandhi and her National Advisory Council (NAC), still believe growth comes free on trees and all economics is about sharing out the goodies fairly and equitably. They have had the upper hand in UPA2. On the other hand, the need to trade, import oil, and the high level of indebtedness, both external and internal, mean that you have to create policies that generate sufficient growth to pay the bills and leave some over for distributive justice. India has some $ 100 billion in debt coming due in 2012. It is these constraints that drive economic reforms, not conviction. Now that agriculture growth has hit a wall, and inflation has surged, the constraints have an upper hand, thus bringing reformists to the fore. Foreign direct investment (FDI) in retail is a handy way of addressing agricultural reforms as well as stimulating FDI cash inflows. Hence the bugle for reforms is being trumpeted once again.

FDI in trade represents low-hanging fruit in the agricultural reform package. It is aimed at rationalising and streamlining the whole procurement, distribution and marketing chain for commodities, ranging from grains to vegetables. It includes warehousing, cold storage, agro-processing, standardisation of products and the like. Standards and seeding are two things whose impact on costs and price are profound but under-appreciated. The payoffs from investment in this area are so rich for the economy that a mere reduction in wastage estimated at 30 percent of total produce, is sufficient to pay for projected investment. If these investments have not been made it is because of the policy restrictions that are now being done away with. Why then is the BJP, as a party of reforms, opposed to the FDI and proposed reforms?

The merchant class had a harrowing time preserving their businesses under socialism. Ingenuity and pervasive corruption in the government helped mitigate some of the constraints. Over the years, the merchants created a near monopsony in agricultural procurement by restricting membership of the Agriculture Produce Marketing Committees (APMCs). FCI and others like the CCI that were supposed to compete with merchants were co-opted by subversion. Support price mechanisms provide some protection to farmers against excessive price manipulation but state intervention has other unintended consequences and is restricted to a few food staples and cash crops. Farmers prefer to grow what the state supports, leading to shortages in things like pulses, vegetables and poultry. Competition by the corporates in the agricultural markets and the backward linkages they create in farming (standard seeds, assured offtake, predetermined floor price, etc) will reduce the risk to the farmers of diversifying into multiple crops like vegetables and pulses. Since a major reason for the high food inflation is structural shortages in pulses, vegetables and the like, reforms have become imperative.

FDI in retail is a misnomer. Actually it is letting in the corporate sector into agriculture. Why should they be kept out? Let the big battle for business begin and may the best survive. How are they like the East India Company? And why should small merchants be protected against domestic competition? They are small but they are hardly poor. Then why is the FDI necessary? Two factors dictate that. The biggies too need competition and that the FDI can provide. The other is technical knowhow, best practices and branding. Some FDI investors may prefer majority control but most will opt for local tie-ups. So the FDI will bring technology and cash, including cash that otherwise may not return to India soon. There is this hugely false propaganda that kirana (retail) stores will suffer. Yes, there will be competitive pressure but they will compete, collaborate, complement. The effect will be initially more on the wholesale rather than retail shops. Mom & Pop stores who know their customers always survive. Merchant fears of competitive pressure are overblown.

More than the merchants, the BJP faces an existential crisis that cannot be wished away. India needs a strong Centre-Right party that champions reforms independently of the constraints that drive the Congress party to reforms. It needs to retain its merchant class base but is unable to protect its short-term interests. Who comes first? Its base or India? The fact is the BJP has not thought through and worked out its politics with a thorough understanding of what economic reforms entail. From being the party of reforms under socialism, it has become a party of the status quo, hunting with the communists and defending vested interests. Nor is the natural religious tilt of the BJP sufficient to cover its tattered reformist credentials. It needs to think hard and afresh whether it is the party that will lead India to reforms and liberalisation or march it backwards. If the latter, then it should not be surprised to see itself marching alone as the aspirational class desert it in droves.

If India does not have a party of economic reforms, then one must be invented. Reforms are too critical to be left to times when yawning fiscal deficits must be bridged after they have been allowed to balloon, funding ill thought out doles.

Support price mechanisms provide some protection to farmers against excessive price manipulation but state intervention has other unintended consequences and is restricted to a few food staples and cash crops

Blasts, Attacks, Terrorism! Where is Security?

As we walked past the 10th anniversary of the devastating events of 9/11, I look at the last decade of how Americans have played a major role with their anti-terrorism campaign across the globe. Looking back at these 10 years, I see a reflection of what the world has faced, mainly man made horrific situations. But what has India learnt from 9/11 and the American policies?

The events of 9/11 in the United States not only brought mass destruction to lives and public property, but it brought along a fear of a beginning of an immense wave of terrorism. A fear to which the entire nation stood up to as one. Even though the Bush administration was and still is strongly being criticized by the rest of the world for their actions, but it did bring a sense of comfort and security to the citizens of the country. The citizens made sure not to let 9/11 go out of the public memory. People became more vigilant to guard their own society.

In February 2011, a Saudi engineering student in Dallas ordered large quantity of concentrated phenol. The chemical company triggered FBI about it. Few days later the courier company reported the same to the local police on the massive order. The FBI traced his emails, phone calls, daily routine and found out that he was planing to build and detonate bombs inside the United States. He was arrested.

Another such incident happend in the UK. A phd student of Nottingham University was arrested as he downloaded “The Al-Queda Training Manual” for drafting his phd proposal. He was held in police custody for a week and then released without any charges. The police said that the arrest was necessary and proportionate.

The US and the UK have learnt a lot from its own devastating events and have taken measures to build an internal structure. But India has just emerged from its own sense of helpless rage, why hasnt things changed in India? Where does India lack its security?

The situations in India are very different to the UK and the US. India is a porous state situated in a volatile region. It is not geographically isolated as the US and the UK. After 26/11 the Govt of India had a golden opportunity to set things in the right place, but the events which have followed till the blast on the Delhi High Court on September 8 have shown that the Government has been numb on these core issues. We havent  We have moved way past the red mark where we should have changed the entire security structure. Its time we revive our security mesures and link them with our society. At the moment the entire policing system is in a disarray.

The policing structure of the entire nation has to be changed and then integrated amongst the sections of the society.  It is not just the superstructures that are important, it is that these structures when integrated with the lower level of police and co-ordinated with each other on a daily basis. While intelligence co-ordination remains a challenge as each government, from the central to the state handles information and people in its own way. India’s another problem has been low capacity levels, for instance even if we look at it statistically, India’s military to population ratio is 1:855. Similar adverse statistics prevail for the police force making India one of the most under policed states in the world with an all India average of 125/100000 against the recommended UN figure of 222. Shortage of law enforcement representatives obviously leads to retreat of the state and the space vacated is taken over by anti state elements.
Lets not forget that even the people who have to be vigilant in the society. People have to check and identify these key elements who may create such issues in the society in the near future.

The entire policing system has to be integrated with anti-terror squads who can communicate with higher levels of intelligence. The state police is neither trained or equipped for a terror attack and by the time you get to work, it already caused alot of causalities. By integrating these systems you can find the root cause and prevent these activities.

London riots to London Looting

As I grew up in different parts of the world, I studied books, which had some difference of opinion in some section or the either. Although, my history books had one section which was common, “The British Empire.” There was always a quote which said that, “The sun never sets on the British Empire” but is that really the case now?

There was a time when the British came to India for trade under East India Company. Digging deeper into the books of history, we discover that the Mughals used to make the British officials sit outside their courts because they always had one question for them. ”We have so much in this country, but what do you have to offer us?” But around the rule of Aurangzeb the matters got different and the East India Company turned into ruling India.

 Some facts and figures show that from 1815 to 1914 the British Empire was spread across 10 million square miles with 400 million people as slaves. These figures increased to 458 million people across just over 21 million square miles, which was 25% of the world by the end of 1922.  This figure has fallen massively to just over 1 million square miles.

Now the condition is that 22% of the country’s population is below poverty line (BPL). 40% of the food and beverages is being imported from other countries, more than 2 million people are unemployed and this figure is soon going to reach 3 million. People from other countries like India, who have moved to the UK are making a huge contribution to the economy but still the debt of the country is 76% of the country’s GDP (2010). The government has brought major cuts to so many things, which has lead to anger and frustration amongst the public of the UK that came out by the riots that happened in Tottenham in North London.

 But is rioting the ultimate way to protest and show your anger? There are so many countries that have a much higher rate of unemployment, BPL but never seem to burn down their own buildings. As I’ve been hearing that this is just a problem of racial overtone to which I have to completely disagree. These riots started on Thursday were actual protest against the shooting of Mark Duggan but the motto was soon changed to looting of shops and getting freebies to the people who had no clue about the initial spark. Now the kids as young as 9 years have gone out to shops picking out expensive Nike sneakers and a lot of other things including LCD TV’s, Laptops, gold and cash. Most of the people involved in this were between the age group 10-25 years who had no clue as to what actually started these riots

The parents of these kids are not concerned as to where they were during these horrific moments in the cities. The thing is the sense, culture is getting diminished year after year.

One more thing that actually concerned me was why didn’t the Govt take steps as these riots had just sparked. According to the news, the Prime Minister was on leave and the Parliament was not in session, but then the Deputy Prime Minister was in office and the taxpayer’s money does constitute his pay. If their had been action taken in the beginning, the UK wont have faced a huge loss of more than £150 million.

Members of the Sikh community did get together to protect Gurudwaras, temples and mosques, shops and houses across Southall. I saw one of my friend’s status on facebook asking everyone to gather near the gurudwara. But in Birmingham 3 men tried to do the same, but they didn’t have more support from their own community. Sadly they did pass away.

 Few people who have been caught have been sentenced for 10-16 weeks, when the maximum punishment the courts can impose is for 10 years. People died, there had been a huge loss of over £150 million in a week and still the courts been liberal enough to these rioters. This 10 weeks imprisonment is like a vacation to these people, where they go off to enjoy. Some jails in the UK even have golf courses for the prisoners for them to relax. The Govt which should have cut down on the amenities in the jail, is cutting down the necessities of the general public.

But with the carelessness of the government and the culturally deprived people like these, you think that the sun which never set on the British Empire, is going to set on Britain itself?