A Navratri (Nine-Point) Economic Re-Boot for a ‘Puritan’ Modi

If Modi continues to rely on his babus for solutions, he is going to plunge deeper into the quicksand.

Too caught up to read the story? Listen to it, instead:

In Prime Minister Modi’s unexpected, stirring commendation of “wealth creators” – most tellingly, by using popular English terminology, instead of conjuring up a Hindi equivalent like poonji utpadak (as he is wont to do) – he was signaling a reach-out to new-gen entrepreneurs and elite business-people who have gotten estranged from him.

And by obliquely acknowledging that his regime may have treated them with contempt/suspicion – mark his cutting words in Hindi, heen bhavna – he was being as contrite as Modi can ever be on a public platform.

After finishing an energetic 94-minute speech from the Ramparts of the Red Fort, Modi is understood to have driven straight into a brainstorming session with Finance Minister Nirmala Sitharaman and her band of policy-men on how to fix the economy. I am sure he asked sharp questions, somewhat along these lines:

• Why has public capital expenditure dropped by 30 percent in the June quarter?
• Why has India Inc halved its new project announcements, which fell from a quarterly average of Rs 2.7 lakh crore last year to a puzzlingly low Rs 71,300 crore in the June quarter?
• Why are over two-third of manufacturing companies surveyed by RBI not expecting an increase in their order books? Incidentally, such a dismal number is the highest in a decade
• Why have 15 out of 23 sub-sectors in the Index of Industrial Production contracted?
• Why are 60 percent of the projects in public-private partnership delayed?
• Why has total air freight dropped by 5 percent over last year?
• Why are car sales down to what we were selling four years ago?
• Why are the profits of over 2000 leading companies down a walloping 12.8 percent over last year? Is that why the stock markets are down nearly 10 percent compared to when I got re-elected?
• And finally, the ninth question – how are men’s underwear selling in the country?

Men’s Underwear!? Err …

Alas, PM Modi must have asked the first eight questions, and got mumbling answers about a “temporary slowdown that we shall neutralise with sector-specific sops” – ie, the prosaic prescription when bureaucrats don’t have a clue about how to fix an endemic crisis.

Unfortunately, I am equally sure that he did not ask the last/ninth question, which would have been inspired by Alan Greenspan’s famous “men’s underwear index” conceived nearly half-a-century ago.

If Modi had indeed asked that question, Finance Minister Sitharaman and her band of policy-men would have had to go scurrying to see the sales performance of the top four innerwear firms, who have posted the weakest sales performance in a decade. The best known, Jockey, grew by just 2 percent. While Lux’s sales were flat, Dollar and VIP fell by 4 and 20 percent respectively.

As per Greenspan, this is an undeniable sign of a debilitating economic slowdown. But would Raisina Hill bureaucrats even admit to such a “bizarre & distasteful, ugh” data point? Especially to a puritanical PM!?

Anyway, whether in underwear or Maruti cars, the economic funk is stark and challenging. If Modi continues to rely on his babus (bureaucrats) for solutions, he is going to plunge deeper into the quicksand (as I had written in my piece right after his Independence Day Speech).

On the other hand, I can hear the echo of his resounding assertion from Red Fort:

So, I am going to give our prime minister the benefit of all doubt.

Perhaps his instinct is now telling him to break free from earlier shackles.

Perhaps he is ready to shed the statist mindset that has bedeviled his economic policies until now.

And since I know how fiercely/devoutly he believes in the bi-annual Navratri tradition of fasting to reinforce his sankalp (determination), I shall give our puritan Prime Minister …

Nine Ideas to Re-think, Re-boot & Turn Around India’s Economy

1. Save assets; inflict losses on equity/bond-holders: The Modi government has made a crippling error by killing assets along with prosecuting errant owners and managers. IL&FS and Jet Airways (possibly a DHFL on death row) are two of the most graphic examples, where healthy assets should have been saved, even as the lawbreakers were hounded to justice. That would have allowed thousands of innocent workers to keep their jobs, and inflicted the entire loss on owners of risk capital. After all, airplanes, roads, and dwellings are not criminals!
   
2. Use deep discount rights issues to multiply every public rupee infused in banks: The Modi regime has wasted time and money by putting driblets of capital in public sector banks over several years. It now needs to repair each balance sheet in one go – and think of innovations like a “deep discount equity issue with attached warrants on a rights basis” to multiply the impact
   
3. Shed diffidence/doubt and throw a lifeline to NBFCs, along with the real estate and automobile sectors: A stitch in time does save nine (again, Navratri!). In fact, I would argue for a bold TARP-like window to solve the liquidity crisis of several troubled operations. As an article of faith, never allow a liquidity crimp to become a solvency crisis. (Note: TARP was the famous Troubled Assets Reconstruction Program authored by Ben Bernanke to save the American economy during the post-Lehman recession, with spectacular results)
   
4. Create a trillion-dollar sovereign fund by pooling all public sector companies under it: This professionally managed company should be floated on overseas stock exchanges to create a proxy “India stock”. It should be allowed to sell all unhealthy and non-core units. My calculations show that this could release several hundred billion dollars of productive investments in a virtuous invest-build-and-divest cycle
   
5. Overhaul IBC: With the experience of real-life cases in its arsenal, the Insolvency and Bankruptcy Code (IBC) should be comprehensively amended to make it a swift, incisive instrument of capital assets’ mobility
   
6. Stop hostile taxation of equity capital: Make quick amends. Long Term Capital Gains and Dividend Distribution Taxes should be abolished. The super-rich surcharge on Foreign Portfolio Investors should be dropped. All fetters on issuing differential voting rights’ shares should be removed. Angel and valuation-mismatch taxes should be unhesitatingly killed for all companies
   
7. Curb “tax terrorism”: The Modi government should acknowledge that it has created a Frankenstein by giving arrest and other intrusive powers of extortion to tax officers – all of which should be rolled back
   
8. Stop fudging the real fiscal deficit: It could wipe the slate clean by converting all off balance sheet borrowings into a one-time perpetual bond; and then become utterly transparent in future
   
9. Stop appointing retired bureaucrats in key regulatory assignments: Instead, Modi should co-opt admired domain experts, with a modern outlook and credentials, to oversee key economic sectors. And if the regulators are in conflict with the ministries, Modi should celebrate such dissent, because honest solutions will emerge out of it

Pardon my colloquialism, prime minister, but Just Do It, This Navratri!

(Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.)