On the spot
Last Sunday in Mumbai, on a steamy morning that had in it the merest hint of rain, I had lunch with a businessman friend in the Oberoi Hotel’s Italian restaurant, Vetro. When I walked into the restaurant I was surprised to see that it was completely empty, except for my friend. This caused me to ask him if this was because we were eating earlier than usual. ‘No,’ he said sadly, ‘it is because it is a reflection of the downturn. When you see empty restaurants in a city like Mumbai you know that the economy is in trouble.’
After a long and delicious lunch, during the course of which only one other person came in, I wandered across the lobby to the Fenix restaurant that is usually impossible to find a table in on Sundays because of its outstanding brunch. It was half empty. I then made some discreet inquiries and discovered that this most famous of Mumbai’s business hotels had an occupancy that was somewhere below 20%. This led me to make more inquiries later that afternoon only to discover that most business hotels in the city are recording worryingly low occupancy rates. Until the investment climate began to change for the worse, around two years ago, Mumbai’s business hotels were buzzing with activity. Even in the hot summer months their lobbies would be filled with foreign businessmen and the restaurants filled with people talking incessantly about contracts and new projects. Well, the times have changed for the worse and they have changed dramatically. And, the man responsible for this very depressing change is now happily off to Rashtrapati Bhawan.
If you talk to people in the business world they will tell you privately that his departure from North Block could not have happened a moment too soon and that he has probably been the worst Finance Minister in Indian history. But, what happens now? Will the man who takes over the mess he leaves behind be able to bring back the foreign investors who have fled and the ordinary Indian investors who no longer trust our stock markets and the big investors who have become wary about investing in new businesses? When I have put this question to businessmen I have found that the word I heard most was ‘depends’. And, what it mostly depends on is whether the Prime Minister now takes firm charge of economic policy and takes steps that reassure investors that their money is safe. This is vital because of Mr. Mukherjee having taken decisions that made it clear that, as Finance Minister, he was in a position to change taxes and policies any time he liked. Possibly his worst decision was to slip into his last Budget, in very small print, a tax that would work retrospectively on investments made as far back as sixty years ago.
He did this because of Vodafone having won its case in the Supreme Court. Vodafone challenged the Indian government’s order that it pay capital gains tax in India for a company it bought in Hong Kong from a Chinese businessman. When the Supreme Court ruled that Vodafone was not liable to pay any more than it already had the Finance Minister decided to slip in his retrospective tax without stopping, for even a minute, to consider the signal he would be sending other foreign investors. Why should anyone want to invest in India if their investments cannot even be protected by our highest court? So why did a supposedly experienced minister like Mr. Mukherjee do what he did? From my own sources I have found that this was because he hoped through his retrospective tax to bring in more than Rs 25,000 crores.
He most certainly needed the money. Sonia Gandhi, India’s de facto prime minister, has spent lavishly on welfare programmes and subsidies for the poor that she hopes will help her coalition win again in 2014. Despite Congress having done very badly in Uttar Pradesh, Bihar and Tamil Nadu in the past year Sonia’s advisors, nearly all leftist to the core, continue to advise her that the only way to win the next election is to spend more and more on welfare schemes for the poor. These advisors are urban idealists who have little experience of how these welfare programmes work on the ground so they rarely notice how much of Sonia’s largesse disappears into the pockets of corrupt officials en route to the needy.
In the case of MNREGA my own inquiries during travels in the rural hinterland reveal that there is corruption from top to bottom. There is no way of plugging the leaks either because a vast infrastructure of vested interests has now developed that will protect them from being plugged.
It should have been the job of the Finance Minister to tell Sonia’s National Advisory Council (NAC) that he did not have the money to continue spending recklessly on their grandiose welfare schemes but he never said a word. So a situation soon developed in which his sources of revenue started to dry up because of his bad policies and his expenditure continued to increase because of the NAC’s welfare programmes. The only good news I can give you is that the NAC’s food security law has not yet come into effect and hopefully never will. If it did we would be spending so much on supposedly feeding the poor that there would be almost no money left for anything else. If this succeeded in seriously reducing malnutrition among those 45% of Indian children who are officially malnourished then it might even be worth it. But, decades of wasting taxpayers money on grandiose welfare schemes like the ICDS (Integrated Child Development Scheme) have shown that they do not work. But, this is something that Pranab Mukherjee never dared tell Sonia. Instead he continued to try and find money for her pet projects even if it meant taking the booming economy he inherited downhill.
So we need to celebrate his departure from North Block and hope, with our fingers crossed, that whoever replaces him can find ways to mend the broken economy he leaves behind. At the moment it is not just the restaurants in five star business hotels that have about them an empty sort of feel.