The year of the awakening

The apparent contradiction of keeping poor on welfare and at the same time boosting growth became stark

By Mohan Sule

The juiciest metaphor to illustrate the fall of the mighty in 2012 was the demotion of the mango from its exalted position of king of fruits. Yet the common man’s plate of woes did not get lighter. Instead his ordinary dessert of banana achieved the status of a national emblem. Even before cash transfers gained currency to buy oil refiners breathing space and to expose the poor to technology interfaces such as mobile banking, bypassing dated practices including minimum balance, they had already become fashionable in corporate corridors as book entries disguised as interest-free advances to win over influential friends. Not surprising really when it took an acidic report in a beltway newspaper in the US to shake off the policy paralysis rather than the beseeching by the who’s who of India’s power elite, downward revision of growth forecasts by multilateral institutions, and hints of downgrades by rating agencies. It was a year in which corruption charges, crony capitalism and coalition dharma took the country to the edge of the credibility cliff. Coal and gold, both were lusted, the difference being getting a block to mine was an acknowledgement of moving in the right circles while hankering to own a hedge against inflation was frowned upon as damaging to the country’s fiscal health. CAG was not the result of a precocious child’s stubborn refusal to get the alphabets right but symbolized nitpicking over decimals to put a figure on the magnitude of the loss to the treasury due to giveaways of scarce resources. As the hatchet job to transform a hero into zero got underway, a grounded king of good times spiritedly defended his kingdom, losing a crown jewel in the process.

Another abdication to grab attention was at Bombay House, as an era came to an end. From an India-centric conglomerate, one of the oldest groups in the country has taken a seat among global corporations, delighting some shareholders and testing the patience of others. Just like our western neighbor distinguishes between good jihadis (who want to dismember India) and bad jihadis (who are inward looking), our political class too differentiated between good FDI (in aviation) and bad FDI (in retail). Perhaps they were taking a cue from the US for whom China is a good Communist though its governing members are appointed in secrecy, keeps its currency low and lends some of the resultant surplus to buyers of its exports, but not our homegrown variety elected to rule West Bengal for years. US’s top diplomat rewarded the vanquisher with a visit soon after, though the mercurial politician is driving out rather than attracting investment. Now it is clear that the platter of cookies that might have been offered to the visitor could not have come from any MNC supermarket chain. What is not known is the brand of tea the chief minister served along with them. In retrospect, a few months too late for the touchdown, even this brew would have been a luxury, with the pullback of subsidies on fuels. While the demand-side pricing was being corrected, there was no clarity on supply-side policy. Should natural gas prices be hiked or not? The question remains unanswered despite a new minister for oil and gas.

Face-offs were not restricted between the government and the private sector. The psychological warfare between the finance minister and the central bank over interest rates did not deter foreign investors as the ruling party backed rural prosperity over keeping inflation low and favored loss in revenue due to tax avoidance rather than loss of face because of poor investment sentiment. The flood of inflows provided tailwinds for PSU divestment but complicated monetary loosening. Another spat that turned into much ado about nothing as the year drew to a close was the carpet-bombing of Corporate India by anti-corruption activists. Shell companies, Swiss accounts and string pulling to tailor policies were some of the sins of omission and commission of the rich and powerful. As eight states plunged into darkness following the tripping of the northern grid, the solution offered to tide over shortages by the frenzied people’s movement was to freeze payment of bills instead of letting power discoms charge market rates for uninterrupted supply. Perhaps this is the manifestation of applying varying sets of rules to different consumers. The typical example of the year is PSU banks, buffeted between government nudge to lend to favored sectors and the bank regulator’s mandate to increase provisioning for restructuring these assets. Similarly, investors were sandwiched between the CCI’s crackdown on the cement cartel for holding prices high and the PMO’s directive to supply coal at low prices. No wonder, GDP growth has become the casualty of politics of convenience. Truly, 2012 is the year marked by collusion of the corrupt and collision of contradictions.