State of Indian Economy

Economic slowdown is often cyclic and a fact of life. The economic woes are all pervasive and the root causes commonly fall within select patterns. Individual countries have different problems. However, there is common a shared thread and a select set of individual factors. Identifying the patterns for a specific country will help in putting up a strategy for revival. I have focused on articulating the need for a solution within broader problem space for India, which has fluctuated economically from at risk (2013), expansion (2016) and now again at risk (2019). This blog is not exhaustive and does not go into a detailed root cause analysis or detailed solution building exercise.

In this article, I have identified select solutions that would cater to the existing problems, help boost the economy and address the social issues.

Economic slow down is often cyclic and a fact of life. Slowing down or crash landing of Indian Economy is an increasing chatter on the internet. However, a closer look will reveal that the recessionary phenomenon encompasses most major economies including US, China, Japan, Germany, UK, France, Russia, South East Asia (the so called ‘Tiger Economies’ of 2000’s), Brazil, Turkey and oil rich Gulf Nations. Latin American countries such as Venezuela, Brazil and Argentina are acutely going through this recessionary distress with revolts and change of ruling Governments. Venezuela is undergoing severe inflation called stagflation that is spreading the contagion across the borders. Poland and Canada are amongst the only few countries that are showing flying colors despite the adverse global economic head wind.

Nations such as Pakistan, Sri Lanka and many African countries, especially those who have subscribed to the String of Pearls (SOP), Belt and Road Initiatives (BRI), Regional Comprehensive Economic Partner (RCEP) and the 54 nations of the Africa Continent Free Trade Agreement (AfCFTA) will face a massive financial challenge while servicing the burgeoning Chinese loans. Countries such as Pakistan, are on the precipice of falling into bankruptcy. 

The economic woes are all pervasive and the root cause commonly fall within select patterns. Individual countries have different problems. However, there is common a shared thread and select individual factors. Identifying the patterns for a specific country will help in putting up a strategy for revival. I have focused on articulating the need for a solution within broad problem areas. This blog is not exhaustive and does not go into a detailed root cause analysis or detailed solution building exercise.

Ignored Global Comparison:

In India, private debt in 2017 was 54.5 per cent of the GDP and the general government debt was 70.4 per cent of the GDP, a total debt of about 125 of the GDP, according to the latest IMF figures. In comparison, debt of China was 247 per cent of the GDP. As of October 2018, it stands at approximately CN¥ 36 trillion (US$ 5.2 trillion), equivalent to about 47.6% of GDP. A key gauge of China’s debt has topped 300% of gross domestic product, according to the Institute of International Finance (IIF), as Beijing steps up support for the cooling economy while trying to contain financial risks. China’s total corporate, household and government debt rose to 303% of GDP in the first quarter of 2019, from 297% in the same period a year earlier, the IIF said in a report this week which highlighted rising debt levels worldwide.

In the United States, total non-financial private debt is $27 trillion and public debt is $19 trillion. More telling, since 1950, U.S. private debt has almost tripled from 55 percent of GDP to 150 percent of GDP, and most other major economies have shown a similar trend. Cumulative debt stands at 40 trillion dollars. Comparative figures from US reveal that India is not badly hit, considering the numbers released by the Indian Government are trust worthy and credible.

Let us review select Key Performance Indices (KPI’s) of India’s financial health. Here are few interesting figures from the State Of Indian Economy –

  • GDP growth is at a 15-year low
  • Unemployment is at a 45-year high
  • Household consumption is at a four-decade low
  • Bad loans in banks are at an all-time high
  • Growth in electricity generation is at a 15-year low

The list of highs and lows is long and distressing. But the state of the economy is worrying not because of these disturbing statistics. These are mere manifestations of a deeper underlying malaise that plagues the nation’s economy today. These figures were  published in the Hindu, a very reputed and respected daily. When I share independent data from foreign outlet, those are immediately ridiculed as being ‘biased to damage the growing stature of India’.

I was talking with a building contractor friend of mine who has a meaningful business.  When prodded on his state of business, he said, everything is so dry and no new constructions are taking place. This is not my isolated discussion. Every now and then, I do probe these questions to people across the globe and India happens to be on the top. Below is a list of industry verticals that are not just sluggish but in recession (more than 2 quarters of slow down beyond certain percent points).

 

India Economic Slow Down

Industries Impacted: 

  • Manufacturing
  • Farming
  • Auto
  • Construction
  • Airlines
  • Service industry

Impact Equivalence: 

If you factor in the total percent affected, you will notice a major chunk of population that forms the base of the pyramid, is affected because of the slowdown.

What happens now?

Well, families and business entities are at least losing 34-57% of their revenue. That’s a significant number. Spending goes down and tax collection goes down, tax at the POS (point of sales), tax from earning and tax from business.

  1. Quantitative Easing
  2. Bad Loans or Risk prone leveraged industry
  3. Global slowdown
  4. China – A special mention
  • Quantitative Easing:

Well, let us borrow now at cheaper rate from the Govt, or blow up what is saved in RBI (exit RBI Governors), loan or from outside or print currency.

  • Bad Loans or Risk prone leveraged industry:

We can’t let this to catapult to a state of anarchy. We have to loan where the potential for defaults are high. Banking, Airlines, Telecom ate common examples. These were bankrupt overnight? The most common folks (shareholders) lost the most. Millions of crores of national treasure disappeared in just a fraction of time.

I disagree with “the Hindu” here. Let us understand, corruption was not just prevalent but endemic and all pervasive. Nothing wrong, if Modi tightened the levers. At least he had guts to do that. No one including the system had shown responsible behavior and if Modi has tightened the noose, nothing wrong about it.

I will elaborate the reasons where we are going wrong, needless and pointless to blame Modi for all the ills. Devaluation and GST came at a wrong time that confluencing along a Global slowdown, on which Modi had little control.

  • Global slowdown:

India is not alone. China, UK, Germany, Japan, US, France, Gulf, Russia, Brazil and many Tiger economies (remember the term for ASEAN economies used in 2000) are significantly slowed down.

  • China deserves a special mention:

China is the worst affected with 100s of ‘Ghost Cities’, flailing international trade pacts (CPEC, Asean and The revival of the Silk road) and the flight of money compounded by increasing cost of labor. It is gaining a notorious reputation of creating and exploiting poor nation’s solvency, squashing neighbors and selling obsolescence across the globe (recollect how your electrical and other goods specifically made is China have become durable and short lasting).

What should be done?

First and foremost, Modi has to move beyond strongman to strategist. A nation survives on vision and not just statesmanship. I have identified few areas that will help boost the productivity at the individual level, jump start the GDP and improve the health of the economy.

  1. Foundational Infrastructure
  2. Roads and Railways
  3. Satellite Cities and Telecom
  4. Innovation in Farming
  5. Revamp Agricultural Supply Chain
  6. Environment and Pollution
  7. Sewage and Containment
  8. Social Re-Engineering

India Vision and Strategy

Foundational Infrastructure:

The endemic water deficiency mandates saving water, reviving rivers and building colossal connected canals for transporting water are a crucial and critical need of the growing population. It goes beyond saying that water is required for Agriculture, Industry and daily use. Lack of water will result in immediate and nationwide chaos.

Roads and Railways:

Not Airways or Bullet Trains. Though the road network is improved significantly in the last decade, it is still only sufficient for the next 5-7 years. Cities are still clogged and they will get further cluttered. Roads and rail are required first, that’s how most population and goods move across the nation. Only few travel by Air or Bullet Trains. Remember, those costly built rail networks in Africa that cost their nation a hefty and heavy loan serving overwhelming burden. India should not repeat that.

Satellite Cities with Telecom/Internet:

Creation of satellite cities is a key to decongest and reducing the risk. We live in a connected world and to be on the forefront, Internet and fibreoptic becomes a foundational utility.

Innovation in Farming:

The last time a major innovation was done under Green Revolution by Lal Bahadur Shastri. Thereafter no radical change has been effected in agriculture. Other than small incremental changes to innovation in productivity, least has been done to the farming supply chain. Current risk management is based on disbursing cash to those drought affected (after an increase in suicide rates) or those with inadequate production.

Revamp Agricultural Supply Chain:

Perishable crops are still creating significant damage. Over production is still a rampant issue. Mid and Long term Storage of crop is limited to grains, very few and insufficient facilities exists for increasing the shelf life of vegetables. India has enough space to store Grains though. Value added product infrastructure is significantly missing.

Environment and Pollution:

Everyone has a recollection of the ‘Delhi as a Gas Chamber’ Situation like Delhi are a commonplace across North India. Though a significant stride has been made towards harnessing solar power and unleashing energy from nuclear (rather than coal), India’s dependence on fossil fuel is significant. To move a huge behemoth and diverse country to alternate source of energy, India needs to invest significantly in innovations across multiple sectors.

Sewerage and containment:

This is still a massive problem. Open defecation are a vestige of a long drawn culture. Unfortunately, no institutional efforts have been made to harness gas and manure from human bioexcrements. Name sake potty’s have been built to take time leverage. Both electricity and gas for industrial use can be harnessed from “Gobar Gas” plants. As a child, I still remember we had one GG Plant and it was my duty to buy cow dung on my way back from morning tuition. I would make the slurry and pour in the tank and go to school. That was 1979-80. I promise, GGP will never fall in disrepute.

Social Re-engineering:

It is utmost important for a nation to find and or reinvent its own identity. India is going through those pangs right now. It is at a confluence of several mingling streams. India cannot take recluse to older achievements. If it had the potential in the past for defining humanity, does not guarantee that it will have the same potential to influence the future of humanity or even define the potential of its nationhood. None of these factors discussed above will bring that constant trajectory of intellectual and spiritual achievement. That will only be guided by Social Re-engineering. Currently, society is defined by Facebook and Whats Up University, which in themselves are manipulated to sub serve our inner mortal and material trappings.

Social engineering around several issues is a need of the time. Issues such as existing in a plural world in harmony, acceptance of differing views and debate in moderation, women’s emancipation, abandoning the vestiges of ‘Chatur Varna’, adoption of a true pursuit of logical and scientific belief, bringing the inner layers into the evolving cycles of current times, creating didactic pathways that would support the emerging needs of occupations at an optimal pace  are the need of the time. The list runs long however, not having a vision and a strategy is an absolutely unpardonable excuse for those in ruling the nation.

I am less worried about the current slowdown. Those are cyclic. They will occur as the tides of time will ebb and rise. However, not making concerted attempts in shaping nation building is definitely wrong if not criminal. Accepted that the Economic currents are adverse, however, people demand creative, strategic and effective leadership to avoid stagnation, slowing down increasing headwind resulting in a healthy slow landing of the economy rather than a disastrous landing. Leaders of all hues and color have to collectively dedicate themselves towards these vision, irrespective of their commitment to ideologies, being in the seat of power or having the ability to influence.

A Gentle Request:

If the above makes sense to you, may I request you to spread the awareness. Finally, it is the masses that define the polity and politicians do what is the sentiment. Let us all create that positive and productive virtuous cycle of sentiments.

 

Shashank Heda,

Dallas, Texas

More to write later…

Also Visit – US and the World Economy here https://wp.me/p7XEWW-1A

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I disagree with below Excerpts from The Hindu below –

The root cause of this rupturing of our social fabric is the Modi government’s ‘mala fide unless proven otherwise’ doctrine of governance. The premise of the government’s policy framework seems to be that economic participants have mala-fide intent unless they can prove otherwise. This suspicion that every industrialist, banker, policymaker, regulator, entrepreneur and citizen is out to defraud the government has led to a complete breakdown of trust in our society. This has halted economic development, with bankers unable to lend, industrialists unable to invest and policymakers unable to act.

https://www.thehindu.com/opinion/lead/the-fountainhead-of-indias-economic-malaise/article30000546.ece

 

McKenna’s Gold and Moral Dilemma

Yellow Metal – From Nanotechnology to Currency Buffer (Gold Reserve)

gold-nanoparticles-applications-and-challenges-10-638

For centuries now, we are aware of the value of Gold. Gold Standards have, in fact it has taken a central place in our nomenclature and reference. It is not surprising to see that Gold has made a foray into nanotechnology – from diagnostic tools, to conserving solar power to touch screens and advanced data storage. However, to me, the most influencing impact of gold is the gold reserve, that determines the health of the local currency of that country.

Known Gold and unreported Gold

gold-photo-1

Current gold reserves for India stand at 580 tons. India is the largest consumer of Gold in the International market after China. However, it is said that, India has a maximum of yellow metal with its household, amounting to 23,000 -24,000 tons. Countries as close to that value are China and Turkey. Though US has the most amount of gold reserves, standing at 8000 plus tons, it has the least gold consumption amongst the top consumers of Gold worldwide.

If only Southeast Asian countries like India bring the Household Gold on record and to international reserve, it would probably be one of the most influencing factor in circumvent the pressure on the national currency and buffer against the intransigence of fluctuations.

How do we bring the household gold to national reserve?

Of course a change of mindset is paramount. However, more than mindset, much of the gold is from unreported earning. That makes the conversion difficult. However, let us presume, we have the owners ready to declare the Gold. That conversion to national reserve can be on similar lines as holding a piece of land. Once the household gold is considered national reserve, it will be easy to protect that part of the Gold from theft or threat.  It is definitely a cultural change, no one wants to declare the amount of Gold they have, so also, no one wants to declare the amount of cash or other assets they hold. Gold can follow similar lines. We have to overcome the dilemma of declaring Gold.

Why not to expand Gold Reserve?

Expanding Gold reserve will reduce the pressure on the economy and the currency. However, the status quo may be affected because of doing so. Just imagine a currency reversal. Exporter will be significantly affected as exported products would become costly in the international market. However, imports too will be cheap. Products made abroad, ‘Foreign Made’ will flood the streets. Expat dollars flow will be reduced. All these will need a huge modeling to understand the impact. However, it would certainly equalize the value of currency (and efforts) of the common men.

The Ailment – Part 2

 

As per the statistics published by as per the 8th Edition of the Status Paper on Government Debt released on Jan 19, 2019, the latest data available till September 2018, the total debt of the Central government stood at Rupee  82,03,253 crore, the corresponding amount till June 2014 was Rs 54,90,763 crore, the Finance Ministry’s data on government borrowings shows.

While the same white paper also projected the GDP to hit 7.5%. However, the rising GDP is not to the credit of the Government, Federal or State. So, despite the economy expanding, we still see mounting debt. To put it simply – those who are working hard, are truly increasing their output. However, servicing the union is drastically mounting. Let’s review select findings from the white paper.

  1. 35% of the current 82 Lakh crore debt is incurred in the last 4 years
  2. Velocity of debt accumulation was .84% from 1948-2014
  3. Velocity of accumulation has climbed to 1.14% since 2014-2018

 

Not sure if the spike since 2014 can be ascribed to devaluation. However, Its not Modi alone, let’s understand, he could not control the spiraling debt, it has been mounting since last 60 years. We and our media tend to be partisan, never issue based and our partisanship drowns our national interest and what we call as nationalism is actually pseudo inflated nationalism.

This is also a reason for the Rupee to depreciate against internal currency basket. That depreciating Rupee obviously makes imports, borrowing and servicing debts costly. Earlier i shared a clip on farmers loans. Unfortunately, farmer and the poor, who occupy the bottom of the food chain, really get squeezed due to these national macroeconomic malady. The unfortunate truth is that we are caught in the sensational and placating democracy model. This model induces the political dispensation to make concessions that in itself incur spiraling stare support for the masses (to win their votes). Consequently, the lure of power or its sustenance as a ruling party draws us further into this debt cycle which gets exponentially exacerbated with the passage of time. What’s the root cause? Of course the cause and effects are admixed above and the video by Justice Markandey.

Political Servitude to Pseudonationalism and Sensational Politicking.

 

This video from Justice Markandey is old but the facts remain true. We blame China but look at the quality of life, we find wrong when 1 million party workers are punished for corruption (of course there are underlying political reasons too), but corruption is punished, nepotism, communalism all are treated as perverse to the development of the nation. Here, we have pseudo nationalism, pseudo sense of religious identity and pseudo sense of glorious past to cajole us. However, the fact remains that the institutions formed to safeguard the purpose, themselves are under duress from our own sense of tolerance and indulgence. Be it corruption, communalism, nepotism, casteism, favoritism, we have totally devalued and eroded the system with our kind of Governance. Justice Markandey is bold to articulate that pain but rustic and rude to suggest its resolution. The next wave will capture, not our culture but subject us to servile economic conditions due to financial imperialism, mostly from east.

‘Waiting for Godot’ , a play by Samuel Beckett, in which the characters wait for the arrival of Godot (a fictitious character) who is a supposed to be a panacea for their problems. Our 70 year history is no different; we are waiting for the messiah who will help us through this impending economic imperialism. However, like the characters in Samuel Beckett’s novel, we too are engaged in a variety of discussions while we are waiting for Godot.

waiting for godot samuel beckett

India’s debt up 50% to Rs 82 lakh crore in Modi era 

A route to sell (debt)?

While the world is busy with Islamic terrorism, rising pockets of right wing political confluence, reactions to lopsided economic policies (Trumpism), rising carbon dioxide, green house gases, population pressure on nature and infrastructure, we are hardly realizing the emerging imperialism that will drive the next few decades and the struggle of mankind understanding and dismantling the effect of these economic aggression. This should not be considered as a plunder by any outsider, a third country. These are our own dilemmas that are subjugating us to emerging exploitation. Hambanbtota, CPEC, Africa are all examples of such crisis in making.

Hambantota – A White Elephant on Sri Lanka’s Backyards

NYT Ship Cargo

Sometimes in childhood, our parents always insisted to remain contained within our means. I never realized the importance of this in the context of nation and its economies, until I analyzed the huge infrastructure investments and its negative impact on the economies of Sri Lanka, Kenya, Pakistan and many African nations. The build huge airports, docks, railways etc. that were costlier beyond the business value they provided. Let me take two examples – Sri Lank built their Hambantota ports despite the feasibility studies indicating to the contrary. Only 32 ships docked in an entire year. Such hugely expensive infrastructure became a classic example of a white elephant for not Sri Lanka and all economically poor countries. Sri Lanka was unable to service the debt for this project and the terms of the lease also meant, Sri Lanka to lose the lease to this 15, 000 acre of land for 99 years.

https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html

Nairobi Mombasa Railway – Can Kenya service the loans for a lavish railroad?

Obviously a cash strapped economy such as Kenya has to rely on outside assistance for financing and technology to build this 300 mile long rail line. Does this mean this infrastructure was not required? Time and again, countries have been taking recluse to Keynesian philosophy and fiscal policies. Over the last more than 9 decades, it has provided a solid foundation for decision making in infrastructure investment. However, that does not mean a cash deprived country like Kenya should built one of the most sophisticated railway to breed communication and economy. It simply cannot sustain the financing. A simpler economic model would have been feasible.

https://www.theguardian.com/world/2018/mar/01/kenyan-conservationists-protest-as-chinese-company-starts-work-on-railway

China Pakistan Economic Corridor – A classic case of Conflict of Interest

At least, China should utilize this route through Pakistan built with Chinese financial assistance and with the aid of Chinese companies and man power. It deprived $62 Billion dollars of Pakistan’s precious foreign currency in building this economic passage that passes through complex land and even more complex political corridors.

https://en.wikipedia.org/wiki/China%E2%80%93Pakistan_Economic_Corridor

From Djibouti, Sierra Leone, Ethiopia, Senegal, Rwanda Mauritian, Morocco, Zimbabwe – No shortage of underperforming deals

Consulting firm, McKinsey computed that, Chinese loans accounted for about a third of new debt by African governments. These are not lone countries, the list runs long. Gullible minds were only aware of China as a power house of cheap obsolescent products. However, these infrastructure projects turn out to be not just imperialism but ravaging the countries and its people. In Sierra Leone, the presidential elections are heavily influenced by China. Djibouti has an official military Chinese base. Scores of examples are coming out into the open from such investment decisions that will influence the fate of nations and its people. It isn’t economic imperialism, it is neocolonialism

https://foreignpolicy.com/2018/08/31/chinese-aid-and-investment-are-good-for-africa/

https://thediplomat.com/tag/chinese-investment-in-africa/

https://thediplomat.com/2017/07/china-officially-sets-up-its-first-overseas-base-in-djibouti/

While we resent the devaluation of currency, these are currency raiders. While the West plundered the East, these are times of economic poaching and Neo Colonialism of the poor nations.

Johns Hopkins School of International Studies

Rail roads, ports or expresses way all infrastructure to support China to expand it’s market and sell its products? Or else, China should help build these African nations with factories and manufacturing units that will financially enable these countries to be on their own.

Should the World be worried about China’s Belt and Road Initiative (BRI)?

Policy makers and politician across the World are stunned and watching with consternation, the massive ‘Belt and Road Initiative’ undertaken by China. Is this infrastructure investment project centered on China? Is this similar to nation building foundational utilities for a nation similar to building freeways, electricity and other amenities? Keynesian theory has been underpinning the development of several countries across the world. It has consistently shown results and it is this formulation that scares the policy makers across the world. Should the world not be worried?  https://wp.me/p7XEWW-14k

BRI China

Fundamentally this infrastructure investment cannot be based on flawed interpretation of the vision for the future. However, it assumes a unipolar work wherein, they are extrapolating the analysis of the last 25 – 40 years of fulfilling the global demand for products, especially in Europe and North America. This intelligence is based on few fundamental assumptions that the world will forever be a unipolar manufacturing house, wherein the customers are perpetually based in Europe and North America. As long as the status quo remains, i.e., China is the manufacturing hub and the consumers are the developed world, this assumption provides a competitive advantage by investing in Belt and Road Initiative (BRI). Somewhere, this model emulates how the US-UK controls the Suez or Panama Canal and its impact of the global economic flow. Let us understand the situation other than the happy path.

Increasing competition:

First, in the last few decades, the world has grown more multipolar. There is significant competition amongst the nations for capturing the marketplace. Especially those nations, which were at the precipice, are gradually bouncing back to garner their share in global economy. After their chaotic transition, these nations are gradually stabilizing and as the maturity proceeds, they will enter the fray and be competitive.

Dwindling Customer Base in First World:

Last decade has been a testimony to how several Western European countries are gradually receding economic footprint or into recession. This will eventually erode the customer base from Europe. Overall, the population growth is stabilizing and the median age is rising. That does not mean, the customer base will vanish altogether. However, even a modest erosion of customer base from Europe would wipe the profits to make it uncompetitive.

Does that mean the global demand for consumption will decrease? The answer is obviously no. Where is the consumer base moving? First, the consumption will not decrease; instead, it will increase, as is indicated by several policy planners. This will follow phasic manner – the initial burst and the sustained period. The immediate burst will be centered on China, India and South East Asia and the sustained phase will be around the growing economies from African Nations and Latin America along with the traditional customer base in North America and Europe. South East Asia, China and the Indian peninsula will has a potential future growth due to dual factors – rising income levels and incremental recruitment of the expanding population base to propel the consumer market. The sustainment phase will be due to two major pockets – the traditional consumer base in Europe and North America and the expanding base in rising economies. Irrespective, the consumer base will move and be multipolar.

Transition of Blue Collar to White Collar Workforce in China:

As the population is China evolves makes a transition from blue collar to white collar, it will also see an increase in consumption. This can be very well corroborated with the Maslow’s phases of self-actualization. This transition will not support the earlier model of cheap low cost labor required to support a manufacturing economy. In fact, the white collar will propel consumption and China will move towards a net consumer economy.

Collaborative rather than pugilistic policies:

In the last decade, China has been increasingly assertive, lean heavily towards currency manipulation, disrespect world order and hegemonist in its approach. All these would deter the business environment and move the fulcrum towards unfriendly business environment, not realizing the impact of its short sighted policies at the detriment of its national cause.

Simply following Keynesian theory and investing in infrastructure in unlikely to propel the country in eschewing the benefits of it investment policy. China knows that and it will not be a surprise to see either the partner nations pulling out of such collaborations or China itself pulling out of such investment execution with the resultant fall in those ‘Belt and Road Initiative’ bridges.

The Economist | Planet China

https://www.economist.com/news/leaders/21746901-project-century-may-help-some-economies-political-cost-chinas-belt-and-road?frsc=dg%7Ce

https://www.rand.org/blog/2018/03/one-belt-one-road-one-ruler-china-term-limits-ban-imperils.html

 

GDP Post Demonetization

The impact of demonetization in day to day life are well discussed and evident. Select state elections will reflect people’s verdict as well.

GDP is the barometer and an objective evaluation of the impact. Recent reports on the fourth quarter economic parameters point towards economic compression directly related with demonetization. Despite demonetization being a fundamentally appropriate policy towards containing the unaccounted money within the system, it floundered. It is not a political question – it was a national initiative and a unique opportunity. What went wrong? This is a prelude to an upcoming blog on how change could have been managed properly.

Sometimes, those seating at far off can see things better than those who are seating at the epicenter. This is the case with GDP. I had already prognosticated, that the GDP would suffer setback from 0.5 to 1.25. I also opined that demonetization is good in the long term, GDP effect is a short term disability. Of course, the way demonetization was carried and the way the system defaulted to earlier state, it proved no value overall. In the absence of mid – long term value, we can only focus on the short term impact.

Though arguable, it impacted the GDP. True, it removed all soiled Rs.500 currency from the market, possibly from some black marketers and terrorists. That’s the sum total of Demonetization. Here is my question – Did Modi lacked resources in envisioning, (impact and scenario) analysis, planning and executing or did he not trust folks around him or did he do this in haste? I trust, it was a combination of the first and the last reason.

India is too heterogenous country. A system wide change needs a vision, deep rooted trust in people, a sound understanding of the ground level constraints and a thorough evaluation and impact analysis capturing those into the execution plan. In hindsight – Can we think of how this could have been done better, more surgical? Less traumatic? Possibly, therein lies the solution for Second Generation Demonetization.

‘I have not failed, I have just found 10,000 ways that won’t work’ – Thomas Edison.

That which does not kill us makes us more stronger.


Citations:

Despite demonetisation, India’s GDP growth stays 7 per cent: Govt data

https://www.forbes.com/sites/timworstall/2017/03/07/as-fitch-says-that-7-gdp-growth-for-india-looks-odd-given-demonetisation/#3ac3c61c48ed

http://economictimes.indiatimes.com/news/economy/policy/modis-victory-has-made-a-mockery-of-the-criticism-that-demonetisation-got-christopher-wood/articleshow/57627263.cms