By Vivek Pattanayak in Bhubaneswar, February 27, 2017 : War in Syria, rise of  ISIS, turmoil in Libya, massive migration  from the Muslim countries  to Europe, Islamic terrorist attacks in France, Belgium and Germany, unexpected Brexit (clearly reflecting a sharply divided Britain), election of apolitically inexperienced  maverick  as President, (demonstrating a polarized America), tension in south China sea, renewed confrontation  between Iran and America  on one side and North Korea and USA on the other  have created an unpredictable uneasy global  political situation.

 There is a new doctrine called “America for Americans” The old Munroe doctrine is still valid since not explicitly repudiated. Wall is under construction between Mexico and USA. Open aggressive advocacy  for   protectionism is taking roots in the country which only two decades  ago advocated  for a “new world order” for promoting global, liberal  and cross-border trade and business.Border adjustment tax – levies on imports and  tax-free exports  -is in the process of coming into force in USA so-much to the glory of free global business.

Ascendancy of right wing political  obscurantist conservatism   in the Western Europe accompanied by open and loud call for freedom frommore than half-a century old plurilateral  European Union  under persisting   threat  of possible Grexit,  by ultra-nationalists, with uncertain future of NATO  and  Trump’s proximity towards Putin, the   leader of the country  still under the Western sanction  have added to this enigmatic  complexity.

India in the globalized economy buttressed by communication technology is not totally unaffected by these developments. The executive order of President  Trump  on H 1B visa and other utterances have potentiality of sending around 3500,000 highly qualified  Indian professionals back to the country, already facing ten -year high unemployment level, an economy whose growth rate has been brought down by IMF to 6.6% following demonetization.

Recent attack on the Indian techies killing one and injuring another  by ex-naval officer is a miasmatic  augury following trenchant attack  by Trump on outsourcing, immigration, and “stealing” of jobs by foreign workers, by resorting to falsehood as  candidly exposed by Nobel laureate Amartya Sen, during the Presidential election campaign and thereafter, and thereby flaming the anger of the radical, racist and  dissatisfied and generally insular whites and creating bitterness and hatred jeopardizing the security of the large number of engineers, doctors, lawyers, professionals  and businessmen of the Indian descent who are often termed as visible minority and many of them can be mistaken as hailing from the  middle-eastern countries.

In the light of these developments, one should review our country’s political economy after presentation of the budget, two weeks of  circus of Jallikatu, political instability in Tamil Nadu following claim to power by someone (who many think to be an imposter) and no-holds-bar free for all  feverish vituperative  election campaign for the State Assemblies and urban municipalitiesin Maharashtra and three-tier rural Panchayats in Odisha accompanied by unprecedented violence and demonstrative  use of money power. If the demonetization was supposed  to have eased out black money, rooted out corruption and successfully smothered terrorism, how all these evil  wealth re-surfaced and terrorism persists is a legitimate question a rational human being is expected to ask.

Rating agencies, particularly at the national level   have generally assessed that budget targets are reachable although implementation is important. Cooperation and coordination between the central government and State governments are essential pre-requisites for smooth and successful implementation of programmes mentioned in the budget under a federal structure which was eloquently touted from pulpit as cooperative federalism .In the background of the political leadership in a battle mood, it can give confusing signals to the already demotivated and beleaguered bureaucracy.

In the background  of this ,implementation of China Pakistan Economic Corridor going over the territory under the Indian legal sovereignty giving access to the central Asian hinterland and China’s many trillion dollar economy  to the Arabian sea and the Indian Ocean through Gwadar port in Pakistan ,has a strategic concern for  India. No wonder India has a vital interest in developing similar economic connectivity to Central Asia through Iran by developing Chabahar project with Nalco’s involvement in establishing an alumina- aluminium complex based on cheap oil from Iran.

Strangely Nalco has developed cold feet as it is under pressure to divert its resources for a possible project in India under much publicized “Make in India”flagship programme which is yet to take off magnificently as was anticipated by many when it was launched. Incidentally, Navratna’s profits meanwhile have plummeted last quarter. Port at Chabahar is conspicuous by its absence in any budgetary exercise although there is every possibility of the Indian private sector taking the entrepreneurial role provided  its own ability is not overly stressed.

The Indian companies are not out of woods with 5% decline in profits in construction sector, 15% reduction in fertiliser  segment and 36% fall in real estate area. Even $45 billion textile industry has taken a dip. Incidentally, a study reveals that in the industry which is highly women intensive, one among every seven women is sexually assaulted reflecting social malaise and sickness in the society.

Jindal aims at selling non-core assets to repay loans. Merger attempts in Telcos reflect heavy debt burden. It is reported in the media that high profile recent entry of 4G provider has caused huge loss of government revenue due to its open ended free services for which Commission is not so happy with regulator. The Norwegian company   TELENOR after starting way back in 2008 has hung up on India. Its license had been cancelled by the Supreme Court in 2012. Edelweiss Asset Reconstruction company would take over Adhunik.

There seems to be no offset clause in Air Defence System being acquired from Russia which is not in line with “Make in India policy”. Hindustan Semi-conductor Manufacturing Company has not been able to succeed in promoting the Malaysian company for chip manufacture as the promoter could no secure funds.The latest CSO release shows fall in Index of Industrial Production with consumer durables getting affected by 10.3% and consumer non-durables by 5% indicating there is no alacrity in the consuming market.

The central bank was reluctant to either reduce or increase policy rates since oil price is rising after OPEC called for cut in production while nudging the commercial banks to make downward revision. Presently the oil is hovering between $50 and $60 a barrel which is half of the peak price ruling 4 to 5 years ago. In the event it goes back to pre-2014 level what impact it would have on the Indian economy one can imagine since the country is highly dependent upon import of oil. With poor exports it would undoubtedly affect current account adversely.

There is forecast that the rupee-dollar exchange rate will vary adversely to make it Rs 70 per dollar, and meanwhile the foreign exchange reserves have fallen in two consecutive weeks. The US Federal Reserves may be more hawkish than before which would increase VIX factor both in currency and stocks.NPAs of Bank are a big concern which is $91 billion representing 8% of GDP and highest in the emerging market. Even Rs 10,000 crore capital infusion envisaged would not be sufficient to meet the mounting NPA according to Shri C Rangachari, former Governor of RBI.

Andhra Bank, Dena Bank, Central Bank of India and  Indian Overseas Bank are reportedly breaching BASEL norms for Tier I. Such is the state of NPAs in banks that the government funds will not be available for capital adequacy ratio even with disinvestment in CPSUs, and a suggestion was given by a senior RBI official recently that the Banks should resort to mergers .One should watch how the merger of some the subsidiaries of SBI will affect management, lending and digitization.There are reports of possible capital infusion of Rs 1000 crore into IDBI.

At this juncture, it is stated restructuring of NPAs, rescheduling and haircuts have got into a dead-end as the executives are unwilling to decide for fear of vigilance retribution. Recent arrest of former top man of a big bank has sent such a shock wave in the banking fraternity that a group of senior top ranking bank executives have expressed serious apprehension about the diminishing morale among the rank and file in the banking structure which would ultimately affect the day to day working. This has been raised before top political hierarchy.  Even Bank Board Bureau is reported to have expressed that the bankers would not lend or reschedule if vigilance action will hang as a sword of Damocles on their heads.

“Start up and Stand Up India “programme began with much fanfare.Latest report says that hiring has fallen by 10 to 50% with Start Ups.Attrition has gone up to 45% from last year’s 30%. There has been 20% lay-off. Number has gone up from 5000 in 2015 to 9200 in 2016. Inability to secure funds has been the main reason for this disappointing performance.

At this time it is extremely disappointing that the senior civil servant in high position has publicly stated that human resource talent in CPSE is disturbing.In Human Development Index India is at 130 as against 90 by China. Ease of doing business continues to be not spectacular.

Under these uncertainties   in the global political economy affecting India, what policy makers, bankers, corporates and governing institutions will do, or should do to revive the economy.

In the first place the Indian population consisting of 300 million people considered as middle class and possibly another 300 million people having the potentialities of joining the same category constitute an unenviable market by any global standard. In the next 15 years it is believed that one third of the population could be classified as middle class in the world as per a study made by OECD a couple of years ago. India cannot escape that development.

Second, demographics show that more than 60% of people are below the age of thirty. India now and in fifteen years from now would have robust working population while the aging population would overtake the Western world consisting of USA, Canada, Europe (including Russia),  Japan and Australia. China with its one child policy, now abandoned, would also suffer from aging populace.

Third, the country has a governing structure partly bequeathed by the British  and partly developed by the founding fathers of the modern India and also partly evolved  since liberalization with its legislative bodies, multi-party system, political executive at all levels  subject to regular election process under independent constitutional body ,neutral  judiciary, apolitical  bureaucracy, powerful audit body ,special constitutional or statutory  institutions for women, aboriginal people, depressed class, minorities, free  media, vibrant civil society, statutory  regulatory bodies, banking  institutions and enlightened academia which a very few emerging markets can rival.

Investments in infrastructure like roads, railways, ports and airports whether private, public or foreign should be encouraged. Clean India programme should be dovetailed to tourism, generation of electricity or recycling of water, cans, reuse of paper etc. Promotion of tourism both domestic and international, attracting private and foreign capital would help in generating employment. Ware-housing facilities in the rural and urban areas, cold storage, real-estate, housing, and hospitality sector including hotels, resorts, casinos, and roadside motels and restaurants would rekindle the cement, steel, aluminium industries and eventually mining sector.

Cooperation between centre and the States knowing very well that different political parties can form government at two different levels is a must. Respect for the States by the centre and non-confrontational attitude of States towards centre should be the approach.  More financial autonomy to the States, transfer of more functions, responsibilities and financial power to the urban municipalities and rural local bodies should be next step. Implementation of GST would assist in developing a seamless market within a huge territory.

Continuous review of laws, rules and procedures for simplification should be an ongoing exercise. Rapid adjudication of disputes through judicial or quasi-judicial approach resorting to conciliation and arbitration would create climate of confidence for business, trade and commerce. Governance is a big challenge. Law and order is the first and foremost obstacle to development. Temptations to misuse investigating and law enforcing agencies for political advantage must be resisted by politicians. Both political class and law enforcing bodies are losing credibility very fast.

Building political consensus on issues relating to diversities of people on grounds of religion, languages, racial and ethnic origin is the way to create nationalism. Different constitutional and statutory bodies must not work at cross purposes. Incumbents holding such position should free themselves of hubris. Media and civil society need not oppose for the sake of opposition.

The President of India is not merely a figure head. He has a role of father figure bringing national reconciliation and coordination among the institutions. Political doctrine is well established that   he has right to advise, right to be consulted, right to encourage and right to warn. Within that ambit, he can play a very constructive role to bring political equilibrium for economic growth by ensuring proper constitutional balance.