Rich become richer in India's sinking economy

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The Union Minister Kapil Sibbal told a TV news channel the other day that the GDP growth witnessed during the 10 years of UPA rule was never seen before. No wonder the government has unleashed a

Mumbai high-rises

barrage of adverts showing the UPA version of “India Shining”. Many will take the statement of Sibbal with fistfuls of salt. At the same time, looked at from another angle it would seem largely true. If one cannot quite lump it one might just read on and look at the kind of growth the country has had.

Arguably, Mumbai is the richest city in India. It has been so for most of the post-independence years. But, the kind of riches its citizens flaunt today was unheard of earlier. Take for instance a recent screaming headline in a national daily. Mumbai, literally, is going to have “castles in the air”. Ten such “castles” of 18000 square feet each are coming up in an ultra high-end apartment complex costing a cool hundred crore, i.e. a hundred million rupees (around 60 million dollars). The complexes come with dog parks, crèche, an elevated jogging track and other thoughtful amenities.

The “uber-luxury” apartments have their own restricted clientele who never seem to have heard the term “slow-down”. Duplex apartments in such complexes come with private pools, sundecks, multi-level automated parking and five-star clubs  and can cost as much as Rs. 1 lakh (a hundred thousand rupees) a square feet (about 100 crores for 10,000 square feet). Sold only by invitation, five Signet residences on the 40^th floor of Lodha’s World Tower received overwhelming response and were lapped up for Rs. 75,000 per square feet. Located in Worli it is touted as the world’s tallest residential tower at 442 metres. It boasts of interiors by Armani and a club and a spa by Six Senses among other high-end labels.

Readers will recall a recent controversy over the plan to build super luxury apartments within peeping distance of the President’s House. The project proponent seems to be so powerful as to have had the objections of the security agencies brushed aside. The proposal continues to be alive and it would be interesting to see what eventually transpires.

Residences costing scores of crores are no big deal in Mumbai. Antilia, the house of tycoon Mukesh Ambani, cost him $2 billion, I suppose, more than 10000 crores in Indian money, making it the costliest house in the world. Not to be terribly outdone, his younger brother Anil built a slightly less costly one in Rs. 4000 crores. There

Ambani's $20 billion house

are smaller fries like Amitabh Bachchan, senior thespian of Bollywood, who bought a new bungalow for Rs 50 crores (5 billion rupees) despite having four of them already and Sachin Tendulkar, the legendary cricketer, is going to move into his new Rs. 80 crore (8 billion rupees) house. Paying 10 or 20 crores for a 3 or 4 bedroom houses seems like spending loose change. Bangalore too boasts of such properties that cost multi-crore and claim a pool or a garden in front of every bedroom. Even 3 and 4 tier towns have high-end properties that are worth several crores. People like us, the retired civil servants, cannot conceive of the way such properties are sold and bought.

The country has emerged as the biggest market for business jets in Asia-Pacific region. It has surpassed far richer China as a number of business houses and high net-worth individuals (HNIs) have started acquiring aircraft. According to Beechcraft, a leading manufacturer of business aircraft, India has a fleet of 254 business aircraft against 213 in China, 192 in Japan, 150 in Hong Kong, 66 in Malaysia and only 53 in Thailand – all supposedly richer than it.  A report says that even during the slow-down years of 2008-12 Indians purchased 38% more aircraft than in the preceding five years. Experts in the field of business aircraft are bullish about India. They expect a steep rise in the number of HNIs as surveys have indicated that the Indian economy is going to grow “significantly” in the next five years. Beechcraft, therefore, considers India as a very “exciting market” for business aviation and has committed significant investments for registering its presence in the country.

Another recent complementary report said that the number of indigenous billionaires (in dollar terms) is set to double during the next ten years. With 60 billionaires already in the country it ranks sixth among top ten countries. By 2023 the number is expected to rise to 119 according to the Wealth Report of Knight Frank who runs a global consultancy firm. With the global rise in the numbers of ultra-wealthy in 2023 only three countries, USA, Russia and China will have more billionaires than India. That’s saying quite a lot for the country’s business acumen.

Earlier during the pre-independence years we knew of maharajas maintaining huge garages for stabling their car collections. Maharaja of Gwalior (the grand-father of the Central minister Jyotiraditya Scindia) was called the Prince of Mercedes owning as many as 75 of them apart from assorted Rolls Royces, Bentleys,

A Rolls Royece car

Cadillacs, Packards and sundry high-end European cars like Alfa Romeos and Hispano Suizas. Today, leave alone the business/industry tycoons, even film stars maintain a handsome stable of cars. Amitabh Bachchan has many among which is a multi-crore Rolls Royce and he gifts his son a 2-crore Bentley without batting an eye-lid. An up-and-coming actress acquired a bespoke Rolls Royce. The legendary cricketers like Tendulkar and MS Dhoni, likewise, own fleets of luxury cars, Dhoni even having a battery of high-end exotic motorbikes. 

With money flowing in with Sibbal’s growth, the rich are now graduating to luxury yachts. The earliest owners were Vijay Mallya, Gautam Singhania and Anil Ambani. They are now not the only ones; every fat cat wants one and now the country has around150 of them crowding the sea off the Gateway of India. The itch is fast progressing southwards to Goa and Kerala.

All this does not take into account the cash illegally stashed away abroad. Estimates vary about the amount but the Central Bureau of investigations once submitted before the Supreme Court that Indian are estimated to have about $500 billion in banks abroad. That was in 2011. It may well be well above that figure now with all those enterprising people having made far more money in the interregnum. The government has put the lid on the cashe of information so firmly that none has been able to pry it open. After all, its own big guns and other politicians are all reported to be guilty of sneaking away money to foreign lands. One can, however, gauge the ill-gotten riches of Indians by the inestimable wealth of the Hindu temples. An erstwhile mining magnate of Karnataka had made an offering of gold and diamond coronet to his deity in a Southern temple costing around 2.5 billion rupees.

Down below, the middle classes are also doing not too badly. There is a housing boom with luxury apartments in gated complexes coming up all over the country. A hundred thousand today is meaningless money. You have to have in several multiples of it to be able to get going in kind of a middling life. Mercedes, Audis and Range Rovers are in profusion and so are Hondas that clog the lanes and by-lanes with houses unable to accommodate multiple sedans. Tata’s compact car Nanos are a no-no and Maruti Suzuki 800 has become extinct.

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Sibbal is, therefore, right! There has been unprecedented growth during these ten years not in the economy but for the tycoons and, of course, politicians many of whom have become crorepaties (billionaires). That the economic growth has dived into the pits, foreign investment is conspicuous by its absence – even the Indian investors have migrated abroad, manufacturing is scraping the bottom with job creation virtually zero and the persistent high retail inflation – all that and many more, taken together is another story. For Sibbal growth has taken place in right quarters. As for the poor, they can wait; years and years of democratic India is ahead of them to play the catch-up game. Where is the hurry?

All photos are from the Internet

The contracting Indian economy

Even as a layman uninitiated in the intricacies of macro-economics I get an unmistakable sinking feeling, the same which I used to get during the days of our pseudo-socialism. Prices would rise relentlessly while the incomes would by and large remain stagnant. Whether it was the essentials, the utilities, services or whatever – the price of everything would every year register a rise making survival difficult for us ordinary folks. Despite the progressive enlargement of the government it would seem as if it was helpless; the absence of governance was all too palpable. The financial squeeze was mostly on the vast numbers of poor and the slowly developing middle classes, whereas the politicians, commanding the country’s resources and with their nexus with business and industry, made merry. 

A similar scenario has again been unfolding for some time. Driven, inter alia, by the oil price hikes and high fiscal deficit of 5.1% due to the profligacy of the government in the social sector, the inflation remains unchecked at a high of more than 12%. The government claims that the wholesale price index has since fallen to around 6% which is meaningless as what affects the people is the consumer price index and that refuses to climb down. Food items, in some cases, have registered around a 15% rise. 

Economics and politics have a close inter-relationship and, hence, the current political instability is going to inflict more hardships on the people. The miraculously galloping GDP growth is currently not even on a trot. The growth rate during the last calendar year hovered below 6% with the last quarter registering a mere 4.5% growth – chillingly close to the abysmal “Hindu Rate of Growth” of around 3.5% that persisted for decades during our pseudo-socialist phase. Although reports of emergence of “green shoots” of revival (of the economy) have appeared in the media one cannot put much stock on them as these are all officially engineered to play down the gravity of the economic distress. 

One fears the worst for the next fiscal. The parties supporting the ruling coalition - the United Progressive Alliance – from outside are likely to arm-twist the government to nurse their own constituencies. The government will have no qualms in playing along sacrificing vast sums of money just to keep itself in power. Fiscal prudence or bold economic initiatives cannot be expected from an anaemic, virtually a minority, government. Growth is likely to suffer and the deficits may increase and so will the difficulties of the common man. 

As it is, investments in the manufacturing sector have dried up. Leave alone foreign direct investments, even the indigenous investments are not forthcoming. The climate in India was never attractive for foreign investors. On top of that the March 2012 budget with its proposal of retrospective taxation and General Anti-Avoidance Rule (GAAR) made the foreign investors apprehensive of the government’s intentions. Investments from abroad dried up accompanied by flight of capital. Dollars became scarce and the Rupee declined against all currencies and about 18% against the Dollar. Imports became expensive and the problem got compounded by slow-down in exports. The current account deficit ballooned to around a massive $35 billion.

Unsurprisingly India Inc. finds investments abroad to be attractive. It claims that apart from the policy-paralysis that has set in, the dispensation is utterly opaque. Besides, the cost of capital has climbed sky-high and the extant labour laws are forbidding. Predictably, investments abroad by India Inc. during the 2012-13 have surpassed those made in India. Industrial plants are being set up in Asia, Africa, Latin America and Europe where mergers and acquisitions, too, have become common. Indian manufacturing base is progressively shifting abroad, especially to China, depriving the country of the benefits of creation of jobs and augmentation of product base. It seems it is cheaper for them to import the finished products from there and sell them in the country. Besides, China is flooding our markets with cheap products of virtually all kinds most of which the country surely has the capability to produce.

The already depressing environment has become more depressing for want of jobs. The nine months of 2012 saw a measly 1% growth in the core industrial sector providing hardly any scope for creation of jobs.  Even during the period of rapid growth only about a quarter of 12 million joining the labour force every year had been accommodated. The manufacturing sector had shed 5 million jobs between 2004-05 and 2009-10 but was unable to create jobs for the rural migrants. In absence of significant job-creation one fears social unrest in the future as the “demographic bulge” will pump in ever increasing numbers into the labour markets. The much-touted “demographic dividend” might in fact result in an extended era of crises of joblessness, crimes and social disorder – the “green shoots” of which are already perceivable in the shape of robberies, thefts, snatchings, rapes and murders. The “overarching” goal of 2013-14 budget “to create opportunities for our youth to acquire education and skills that will get them decent jobs or self-employment” will take some time to materialise.

Despite a spate of cases of corruption involving billions of rupees, the government has determinedly not taken steps to institute a strong and independent Lokpal (ombudsman) - quite understandably, as otherwise most of the ministers would find themselves behind the bars. Rampant corruption in high places has encouraged even lower level petty district officials in amassing millions by illegal means. Describing the pervasive corruption the Apex Court very aptly observed recently that it “...accelerates undeserved ambition, kills the conscience...paralyses the economic health ...corrodes the sense of civility and mars the marrows of governance”. No wonder, even clerks and patwaries (lowest level revenue officials) have been nabbed for amassing millions.

The number of crorepaties (millionaires) has multiplied and is far more than the 48000 determined by the Finance Minister for levy of a nominal additional tax. In fact, there are arabpaties (billionaires) numbering more than 48000 whose assets are both concealed and undeclared or are located somewhere in banks abroad. Seeing so many crorepaties everyone wants to become one by hook or by crook. And, on the other hand, numbers of poor and hungry have also ballooned. As the cost of food items escalates a few millions sink below the poverty line every month. Mindboggling sums are being poured into the social sector to mitigate poverty and elevating the level of healthcare but most of it is siphoned off by unscrupulous petty politicians and bureaucrats. Though the fiscal deficit is thus enlarged people do not get respite from poverty and disease.

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No efforts are noticeable for price control. While the middlemen in the cartelised mandies (wholesale markets) laugh all the way to the banks the consumers are squeezed dry and the farmers keep committing suicide. Likewise, there is no tangible effort to revive the manufacturing industry and/or bring back the invested capital from abroad. The famed Indian managerial and technical talent, surprisingly, delivers in the US, but not in the country. No effort is being made to harness them for the country’s wellbeing. Worse, the government has made no efforts to have the illegal billions stashed abroad repatriated despite the assurances of help and cooperation by various European governments, including those of Switzerland and Germany. Perhaps, that would have been of help in neutralising the fiscal deficit. But then, it is futile to expect such action from those who themselves are guilty of salting away the country’s stolen wealth abroad. Politics and politicians seem to be devouring this country.

It is such a pity that with renowned economists at the helm for almost a decade there is such all pervasive gloom from which the aam aadmi (common man) can scarcely find escape.