Author

Vikram Singh Mehta

Chairman

Senior Fellow

BrookingsIndia

I was in the US last week for Commencement Week — when students receive their degrees. The tradition is to surround this occasion with speeches by luminaries, faculty and staff, and to have much revelry. As I have two daughters studying in the Boston region and one of them was graduating, I had the occasion to listen to commencement addresses by Hilary Clinton, Joe Biden, John Kerry, Mark Zuckerberg and former acting attorney general Sally Yates (she was summarily dismissed by Donald Trump for challenging his order to ban immigrants from select Muslim countries). I also met with faculty and conversed with my daughters’ friends and professors.

The speeches were powerful and inspiring; some were moving. All contained the message that the class of 2017 had an obligation and a responsibility to look beyond themselves, to engage with the world, to help tackle the challenges of global inequity, social injustice, pandemics, extremism and climate change. Marc Zuckerberg called on his generation to address these issues with a renewed sense of purpose; Hilary Clinton issued a clarion call for students to enter public service to protect society against the assault on reason, inclusiveness and diversity. Joe Biden forewarned against confusing academic credentials and social sophistication with “gravitas and judgment” and drew on a deeply moving personal tragedy to caution against “ambition without perspective”. As he said, “reality has a way of intruding”.

Many of these messages were built around the notion that America was the lodestar for the global community. That, without its leadership, the world would lose its moorings. Joe Biden was particularly unsubtle; he decried those who forecast America losing out to China. He dismissed the commentators’ prognosis with a shrug, and the words “give me a break”. The public declamations of students and faculty contained comparable social messages, albeit without jingoistic overtones.

I will admit I was impressed, and, on occasion, overwhelmed by the power of the oratory and the beauty of the language. And I felt optimistic about the future; for, if indeed these, the best and brightest of society, were ready to get off the treadmill of personal aggrandisement and dedicate their lives to social causes, then the current tide of nativism and demagogic extremism can and would be turned back. But that was then.

On my return to India and in the quiet of my study, reality intruded. I picked up the papers to read about the debate surrounding cow slaughter, triple talaq and the comments of our army chief that he would be happier if instead of stones, Kashmiris would shoot bullets, because then his “boys” could respond in like measure unhesitatingly. I read about the latest Trump-ism and mulled over the view expressed by a distinguished professor that Trump, like so many other global leaders, suffered from what psychiatrists term “narcissistic personality disorder” (NPD). Wikipedia defines NPD as a personality trait characterised by “exaggerated feelings of self-importance, an excessive need for admiration and a lack of understanding of others’ feelings. People affected by it often spend a lot of time thinking about achieving power or success or about their appearance”.

I was reminded of the deep divisions in our society and the anger of those disenfranchised by the forces of globalisation, liberalisation and technology. I realised that however exalted the humanist and liberal sentiments expressed during Commencement Week, these were not universally shared sentiments; there was a wide swathe of people beyond the limits of liberal East Coast elite US institutions that held a radically different view of the world and little had been done or said during the past week to understand this worldview.

My optimism faded and I looked back on Commencement Week with a somewhat more jaundiced perspective. I felt that the university authorities had done the students a disservice by not inviting anyone from the other side — such an invitee would certainly not have struck a popular chord but he would have been heard. One African-American student, Jonathan Roberts, received a standing ovation from his peers by pointing out, in language and tone reminiscent of Martin Luther King, that Harvard’s “education had not prepared us to understand… the authenticity of others’ pain…. (that) change will not come from us… (because) we will not sacrifice our (advantaged) place in the system… that we are not ready to inherit this world (and that we will)… inevitably become the political leaders we claim to despise”.

The world is a risky place — and getting riskier. This is, in large part, because of the revolt against the establishment elite and the consequent democratic emergence of the alpha male political leader; some might say, those with NPDs. There are many such leaders, both in government and opposition. Trump is the most notable. They have much in common: All run their organisations (government or otherwise) with a tight fist, as if these were private fiefdoms or businesses. All have limited regard for institutional checks and balances. All are paranoid about loyalty.

Trump, for instance, sent his long-time bodyguard Keith Schiller to deliver the letter of dismissal to then-FBI chief James Comey. And all are also susceptible to flattery. Saudi Arabia is currently Trump’s best friend because they welcomed him with jet fly-overs, billboards all over Riyadh and images of him with King Salman projected on the walls of his hotel.

The class of 2017 can help reduce this risk if they work to stanch the anger that has brought about such leadership. Their focus should not be the individual. People did not vote for Trump — they voted against the archetypical establishment figure. Their focus should be systemic causes. They should interpret the call to public service and social engagement as a route to address these causes and to deploy their talent to create a bridge to narrow the current social, economic and political divide. The liberal East Coast US universities can facilitate this endeavour by inviting a more diverse group to speak at their future commencements.

      

 

 

Given the current geopolitical environment, the price of oil should contain a significant risk premium. For even a superficial sweep of the globe would suggest that the oil market is subject to a multitude of “event” risks. Venezuela is, for instance, caught in a spiral of civil strife; the Middle East continues to be racked by sectarian tension, Iran and US might find themselves on a collision course if the hardliner Ebrahim Raisi wins the presidential election and revokes the nuclear deal; Putin and Trump have ended their love fest; China is unrelenting in its territorial claims in the South China seas, and Trump and North Korea’s Kim Jong-Un are locked in a game of chicken, which could have catastrophic consequences. Trump appears determined to block North Korea’s nuclear and missile program and has said he will take unilateral military action if China does not pressure its client state to change course. He has ordered the aircraft carrier USS Carl Vinson to sail towards the Korean Peninsula. In reply, Kim has said he will bombard South Korean cities and American troops in the region. What will Trump do if North Korea does indeed test a sixth missile.

Will he repeat “Syria” and hit North Korea with Tomahawks and if so, will that trigger responses that lead eventually to the crossing of the nuclear Rubicon? A frightening prospect which in the past would have been reflected in the price of crude. But not apparently at present. The US energy administration is forecasting that Brent crude will average only $54/barrel in 2017, and $57/barrel in 2018, and most oil traders are closing their positions in expectation the market will indeed remain soft.

Are the forecasters and traders being too complacent? The market is indeed well supplied. In late 2016, OPEC producers and Russia agreed to reduce production by 1.8 million barrels per day (mbd) for a period of six months. Their expectation was that this would push prices up to above $60/barrel, but below the break-even marker of $65-70/barrel for shut in US “unconventional” shale producers. Their strategy was based on the assumption US producers would not find it economically viable to come back into the market at price levels below $65/barrel. They could not have got it more wrong. They had not taken into account the fact that through innovation and organisational change, these companies had brought down their break even costs to around $50/barrel. In consequence, given the low lead time required to bring “shut in” capacity back into production, US shale production moved up sharply when post the OPEC production cut back, oil prices moved above $50/ barrel.

US crude oil production in 2016 was 8.5 mbd. The current production is 9.2 mbd, which is more than they have ever produced. To add further downward pressure, there is between 700 million to a billion barrels of oil in onshore and high seas storage. The production cut back is due to expire in May but given this overhang, OPECs technical committee has recommended that the cutback be extended for further few months. OPEC ministers will meet on May 25 and it is expected they will endorse this recommendation, and that Russia will go along with this recommendation.

There are three reasons why analysts expect this supply overhang to persist into the medium term. One, they do not expect the producers to show the discipline they did over the past six months. The view is that the “high absorber countries” (ie, those with large populations, and hence high revenue requirements like Russia, Iran, Nigeria and even Saudi) cannot afford to defer revenues. They face too many domestic pressures. Two, the other “unconventionals” (viz deep water production and oil sands) have significant upside potential.

The lead times are longer than shale, but now that Trump has overturned the block on the Keystone pipeline and Brazil’s Petrobras has almost extricated itself from the corruption scandal that choked decision making, significant new production from these two sources can be expected within the next 3-4 years. And three, demand is undergoing a structural “downward” transformation. Public pressure and regulatory constraints are squeezing out fossil fuels from the economic system, electric vehicles are gathering market momentum and solar and wind are becoming more competitive.

The above arguments are powerful, but there are intuitively powerful counters. One, demand has not peaked. Every forecast shows it is increasing, albeit slowly. The US energy information administration and the international energy agency peg their forecasts on rising demand from Indian and Chinese consumers looking to upgrade from cycles to motorised tow wheelers.

The IEA is predicting that global oil consumption which is currently around 98 mbd will cross the symbolic 100 mbd by 2019. Juxtapose this prediction with the fact that OPEC has limited surplus production capacity—it was only 1.22 mbd in 2016—and that there has been a choke on new exploration expenditure over the past two years and throw this combination into the geopolitical cauldron described above. It becomes easier to understand why the tea leaves of the current oil market are so difficult to interpret today.

      

 

 

This event was held at Brookings India’s offices at 6 Jose P. Rizal Marg, Chanakyapuri, New Delhi on 5 April 2017, and featured presentations from senior Indian and Southeast Asian officials, as well as academic experts from across the region.

      

 

 

The UP elections have given the public what they want. A strong leader, PM Modi bestrides the Indian polity like a colossus. He owes much, of course, to the organisational genius and political acumen of Amit Shah but it is because of the clarity of his message, the charisma of his oratory and the perceived strength of his leadership, more so than any other factor, including the ideology of the party, that the BJP is in power in the Centre and in 14 of the 28 states accounting for almost 60 per cent of the population. It is because of him that no bookmaker will bet against a BJP-led victory in 2019.

The PM is in a rare position today. He has the mandate to implement the raft of economic policies required to achieve what Vijay Joshi in his excellent book, India’s Long Road: The Search for Prosperity has called “high quality growth” but which hitherto have gathered dust because of “tit for tat” coalition politics and vested interests: Policies such as administrative overhaul to strengthen the government’s delivery system particularly with regard to health and education services; second generation reforms of the “factor” (that is, land , labour and capital), markets to enhance investment and employment and disinvestment from loss-making public sector enterprises. He also has the opportunity to bring India into pole economic position by exploiting the uncertainties of Donald Trump’s economic nationalism, Brexit, the French and German elections and the relative slowdown of the Chinese economy. The PM can, in short, afford to look beyond the five-year electoral cycle and take decisions that eight years hence in the final year of his second term or 13 years on as he contemplates retirement, he can reflect upon and say “these were the right things to have done. India is better for them.” He can afford to be a statesman .

That said, hubris can and does lead to nemesis. Indira Gandhi paid a heavy price for ignoring this forewarning. She did not accept the verdict of the high court invalidating her election in June 1975 and imposed instead a state of Emergency. Two years on, an unforgiving electorate summarily turfed her out of power. Analogies should not be overstretched but I was reminded of that decision during the passage of the Enemy Property Act a few weeks back . Here, I need to make my disclaimer . The person most affected by this act is my brother-in-law (my sister’s husband) Sulaiman Khan, son of the erstwhile Raja of Mahmudabad.

Early last year , the government issued an ordinance nullifying, retroactively, the Supreme Court decision . The ordinance was not ratified by Parliament and lapsed. Over the next 12 months , the government issued the ordinance an unprecedented four times. So unprecedented that the President of India himself commented that executive ordinances must not be used to bypass legislative sanction. Last month through a parliamentary sleight of hand and just a few days before the ordinance was due to lapse for the fifth time, the government managed to pass the bill. It did so by tabling the bill unexpectedly and at a time the opposition MPs were sparsely present in the House.

I will not comment on the legality of the government’s actions — I presume the courts will consider it in due course — but I will say three things. One, as a family member, it was painful to hear the government ministers imply in the public forum of Parliament that Sulaiman and his nuclear family were deemed “enemies” of the state in perpetuity because Sulaiman’s father had in 1957, 10 years after Independence, gone to Pakistan. They were saying this about someone who has been forever an Indian citizen; who was twice elected to the UP assembly with electoral majorities that few have secured, who has a masterful knowledge of the Vedas and Hindu philosophy and whose claims have been upheld by every level of the judiciary over 30 years of litigation . Second, the government has , in enacting the bill, taken away all that Sulaiman has and here I am not talking about only property. It has taken away his patrimony of citizenship. Third ,the bill has been passed in a manner that brings into sharp relief the prescience of Jefferson’s forewarning and the acuteness of the democrat’s dilemma.

      

 

 

The latest collection of P. Chidambaram’s articles is an indictment of India’s evolution as a liberal democracy 

I was a panelist at a function in Mumbai recently to discuss P. Chidambaram’s latest book Fearless in Opposition: Power and Accountability. The book is a compilation of his weekly articles written in 2016 for this paper. It follows the compilation published in 2015 under the title Standing Guard: A Year in Opposition. Chidambaram was the lead speaker and there were two other panelists. The hall was overflowing and there were three former chief ministers of Maharashtra, all from the Congress, in the front row. I left the room dissatisfied with the thrust of the discussion.

I will explain the reasons for my dissatisfaction, but before that, let me say this book is a must read, even for those who read his weekly column regularly and have therefore “read” the book already. A bound copy of his articles read over a few hours rather than over 52 weeks brings into sharper focus the political, social and economic issues of significance during the past year and the thread that connects them. It also helps in understanding better the nature and complexity of governance. I should add that whilst Chidambaram pulls no punches in his criticism of the current government, his language is not polemical. His arguments are grounded on facts and driven by reason and logic. They are, therefore, compelling of reflection and debate.

I was disappointed because, I believe, we panelists lost an opportunity to press one of our more experienced and intellectually robust political leaders to reflect on the continuing relevance of our political and electoral system. We had this opportunity because Chidambaram had revealed, through the title of his books and the content of his articles, his deepening concerns about the widening chasm between the institutions of governance and the aspirations of the governed. The title words, “standing guard” and “fearless” suggest that Chidambaram saw (and sees) himself as not just a member of the “loyal opposition” in Parliament, but as a sentinel of the rights embedded in our Constitution .

The chapters, “If we kill dissent, we will kill liberty”; “My birth is my fatal accident “ and many others in a similar vein question the very content of our democracy. These are weighty captions for a person who has been in the vanguard of government for almost 30 years and must, therefore, bear, shared responsibility for the slippage in the quality of governance and institutions of government. So, my hope was that instead of engaging in an inevitably losing argument about the reasons for some of his decisions on taxes or in looking to score brownie points about his failure to deliver on promises made as home minister, the conversation would delve into the reasons for these concerns and in particular, his thoughts on how best to narrow the gap between, to quote him, “the majority in parliament and the majority of the people”. My hope was that we could push him to reflect on the continuing validity of our “first past the post Westminster style” electoral system which, to quote Amartya Sen, results in “not a majority winner but a plurality winner — a minority government that has secured the largest number of votes from amongst a number of candidates”.

My hope was belied and my disappointment compounded by the sense that neither Chidambaram, nor my fellow panelists shared my interest in engaging in such a discussion and there was greater interest in the past than the future.

In my view, Chidambaram’s book is an indictment of the nature of the evolution of our liberal democratic political system and the institutions undergirding it. This is not the conclusion I would necessarily have drawn after reading each article separately, over a year . For then, the charge of sedition against Kanhaiya Kumar for engaging in a debate in the precincts of his university or the lynching of Akhlaq for allegedly keeping beef in his home or the heart-rending accusation by Rohith Vemula in his suicide note that “my birth is my fatal accident” might well have been seen as misguided and tragic standalone events, reflecting less systemic weakness than local circumstances, of one-off consequence . But when these incidents involving a student, a Muslim and a Dalit are read one chapter after another, one cannot but conclude that there is something fundamentally amiss with our polity. The question has to be asked : Why, after 70 years of independence, is our society rent by such deep religious, caste, ethnic and class cleavages?

Similarly, I would have hesitated to infer from individual chapters that our institutions of governance have corroded. But when the chapters referencing the functioning of our judiciary, parliament and executive are read together and facts and statements, such as there are only 12 judges per every million people in India, there is a backlog of 5,94,68 cases in the Supreme Court (February 2106) and 4,153,957 in the High Courts ( December 2104), the bureaucracy operates in fear of the various vigilance commissions and the police are “lawless law enforcers”, are pulled together into one seamless critique, it is difficult to draw any other conclusion. It is certainly not my case that Chidambaram is responsible for this reality. Equally, Chidambaram cannot make the case that this is the consequence of two years of the Narendra Modi government.

Few will challenge the Churchillian comment that democracy is the worst form of government except for all the rest. Chidambaram’s book reinforces this point but suggests implicitly that democratic ideals may be difficult to realise under our current “first past the post “ electoral system. This because it encourages identity politics and “minorityism”. And it offers no mechanism for redress of public grievances between elections . As such, governments are elected “by “the people but governance is not “of “or”for” the people. Chidambaram may not agree with my interpretation but I was certainly hoping the panel would get him to reflect on the need and practicality of an alternative electoral narrative.

The views are of the author(s). 

      

 

 

A large part of my working life was spent with the Shell Group and I accumulated shares in the company. Last year, I decided to reduce my holdings of these shares. This was because I felt the business model of large, integrated, petroleum MNCs was under threat; public sentiment and the regulatory regime would constrain their licence to operate, and more generally, the oil era had entered a period of secular decline.

I may regret my decision but I know these were the reasons I reacted to the FM’s budget pronouncement that the government was going to create vertically integrated petroleum PSUs and the minister of petroleum’s subsequent explanation that scale and size were necessary prerequisites for international competitiveness with equivocation. I asked myself whether, given the speed with which technology is upending the conventional drivers of the petroleum sector, the government should be contemplating such a move at this juncture. Further, I have to admit to disappointment that the FM did not follow this announcement with a statement that the government would make these changes within the frame of a holistic and integrated approach to energy policy.

In my view, historians will with the benefit of hindsight, look back on 2016 as the year of inflexion for the oil industry. They will see it as the year the oil era began to slowly but inexorably hand over the energy baton to clean energy. They will not adduce any one particular event or decision but they will point to the following five broad trends.

One, the exponential advancement of technology leading to the development of a competitive and scalable substitute for the internal combustion engine and liquid fuels for transportation. Two, the growing public acceptance of electric vehicles (EVs) and the concept of “shared mobility” (“Uberisation”). They will cite as supportive evidence the fact that Tesla collected $12 billion in deposit money from customers interested in its latest model. Three, the structural shift in the oil market leading to a weakened OPEC, slowing global demand, a systemic supply overhang and relatively low and range-bound-oil prices.

Four, the weakening of the business models of the integrated Super Majors (Shell, Exxon, Total). This is because it was capital-intensive, high-risk and long gestation; the companies had lost control over oil and gas prices; they had no access to low-cost, “easy oil” as the bulk of such reserves were under the control and ownership of national petroleum companies; and, most significant, technology had reduced the entry barriers and enabled nimble, innovative and entrepreneurial companies to enter and compete across all segments of their integrated value chain. And finally, the deepening wellspring of public and regulatory antipathy towards the fossil fuel industry — so deep that even Trump could not smother public concern over global warming and environmental degradation .

These trends are not discernible in India, today. The demand for liquid fuels is surging, not declining. There is no evidence of public interest in EVs. The petroleum PSUs face limited, if any, competitive pressures and whilst the government has legislated relatively stringent environmental norms related to emissions and air pollution, the standards are observed more in the breach than otherwise. Notwithstanding, these trends are relevant and, in my view, they compel policymakers to ask whether their approach to energy policy is contemporaneous.

Our energy “strategy” has, hitherto, been built around the axis of securing oil supply security. Coal and renewables are priority sectors but given that we have abundant deposits of the former and are building the latter from a very low base, they do not present the strategic challenges that petroleum does. This is, of course, understandable and rational. We import over 80 per cent of our requirements and our economy hinges on the state of the international petroleum market, and in particular, on reliable, uninterrupted and affordable supplies of crude oil.

The question that now needs to be asked is whether this “oil supply side” approach to energy strategy is in sync with the existing and emergent global trends. Is it the appropriate policy in today’s world of surplus oil supplies, multiple oil and gas producers, “tradability” (oil can be bought on the high seas), Moore’s Law (technological advancement will sooner than later overcome the current roadblocks to the development of a non-fossil fuel energy system) and worsening air pollution and environmental degradation? Instead of expending effort and resources to create vertically integrated PSUs when technology has weakened the deterrent strength of size and scale or building caverns for storing strategic oil reserves, should they not instead be looking at a systemic overhaul of the institutional mechanisms for defining and implementing energy policy?

Queen Elizabeth asked an assemblage of eminent economists, including several Nobel Prize winners, why they did not foresee the global financial crisis of 2008. Their response was that whilst “everyone seemed to be doing their own job properly and on its own merit, there was no one who understood the risks to the system as a whole … there was no one who saw the whole picture and who appreciated that whilst individual risks may rightly be small, the collective impact of these risks could well trigger a systemic collapse”.

Today, we have an energy problem. Our demand is surging; the supplies are not keeping pace with the demand and the environment is under stress. But we have no one (other than the PM) responsible and accountable for seeing the whole picture. Thus whilst we manage one part of the energy problem (namely, petroleum) we leave unheeded those that arise from its interplay with the other sectors of the economy (for example, water, food, environment ). Our energy problem is now not so much about the capacity or security of supplies of any one energy source. It is not about the competitiveness, or otherwise, of our various PSUs. These need, of course, to be tackled. The major problem is the collective impact of all of these individual inadequacies. It is the risk of systemic collapse. That is why it is imperative that we now look at energy through an integrated policy prism and contemplate every decision within the bounds of such a frame.

This article first appeared in The Indian Express, on 06 February 2017. Like other products of the Brookings Institution India Center, this article is intended to contribute to discussion and stimulate debate on important issues. The views are of the author(s). Brookings India does not have any institutional views.

      

 

 

How has demonetisation been viewed by foreign investors? Has it made India a more inviting destination or has it raised concerns and made them perhaps pause and think once again?

Demonetisation has introduced a major element of uncertainty to planning for investment. There is no real sense yet of the full impact of demonetisation; we all speculate but we don’t really know whether the downturn that we have seen in the last few weeks would indeed recover quickly or would it be a long-drawn process. Foreign investors are however not driven by this short-term measure, they’re looking at other steps as determinants of their interest here and as far as India is concerned it is still seen as a major market, especially in view of the fact that China has seen a significant slowdown in economic growth. But demonetisation has introduced uncertainty, and uncertainty is not healthy for planning.

Almost every single company that I have spoken to has faced a significant downturn in the demand for its products, but I’m not in the business, and if others [on this panel] are optimistic about the speed of recovery then I’m not going to challenge them, but certainly there has been a decline in consumption and economic growth, whether it’s 1 per cent or 0.5 per cent, whether that’s going to be annualised over the year to make a severe dent on our economic growth is another issue, but clearly the Finance Minister is looking to present a budget against the backdrop of uncertainty.

There is a certain measure of debate taking place on how the investment in infrastructure, which everyone wants the government to do, should be financed…

Disinvestment is certainly one of several measures the government will have to take to raise funding for infrastructure investment. The politics of disinvestment are complex, some companies are going to be easy to disinvest, many others have vested interests that prevent it from happening, and we have a long history of effort on this issue. But it should definitely be on the government’s agenda, and if it does not succeed in large measure to raise the funds through disinvestment, it will certainly not have the funds or the resources to kickstart public expenditure and investment.

But this is only one measure; we have a very narrow tax base, so clearly the government has to broaden the tax base.

There is a larger issue here and that is the whole investment environment and how do we make the environment more attractive to bring both domestic and international investment into the country. We have an opportunity now, as I said earlier, because China is falling off the edge at the moment, vis a vis other countries, but at the same time there is this huge Trumpian countervailing pressure where Trump is forcing American companies to invest only in America and so the globalisation model has been appended.

We have to recognise that in order to attract investment we have to leapfrog past some of the obstacles that have prevented companies from creating competitive world-class organisations and enterprise in this country, whether it’s the Ease of Doing Business, whether it’s the cost of actually establishing the right investments here, but the fact is we will have to focus on those systemic, structural issues if we really want to accelerate investment.

The Business Standard says that a second area where the Finance Minister needs to concentrate his attention is to encourage a rebound in consumption. What do you think the Finance Minister needs to do to encourage people to spend?

It’s all to do with incentivising consumption through additional public investment and expenditure, it’s through the creation of jobs, it’s through the simplification and rationalisation of taxes, it’s through the implementation of the GST. We have to ensure that there is a connection between what the government is doing and what are the aspirations of the people. People need to feel that they are secure, their earnings are secure and that they can spend without fear of any backlash. At the end of the day, I think the private sector is not going to be investing because there is overcapacity, the credit market is dried up right now, the banks are still facing huge non-performing assets, the international market is slowing down; everything really rests on how the government is going to actually increase public investment. That’s where the focus is, that will then generate jobs, that will then eventually lead to increase in consumption.

Would you agree with the line of thinking that we need to move away from a manufacturing approach to one that is service and cyber space connected?

I would. I’m not sure that I would completely debunk the idea of manufacturing. I think within the manufacturing sector the small- and medium-scale enterprise are hugely labour-intensive and these are the companies that need to be encouraged. The tax structure has to be simple and rational, and the credit structure needs to be encouraging so that people put their money and invest, but let’s connect the dots, because we’re not just going to be able to solve our labour problems through the service sector. We need to actually create a manufacturing hub. I go back to my theme, which is here we have an opportunity to create a manufacturing hub because our competitor companies are no longer seen as attractive as they were, so in order for us to do that we have to sort out the structural issues and create a cost-competitive operating environment and that I think is going to be crucial if we’re going to address the issue of joblessness in our country.

We have to also understand the issue of rural-urban migration. We have to make sure that we actually create enough incentives so as to be able to invest in the rural and semi-rural areas so that people don’t migrate into urban cities and put the kind of pressure that they have started putting on our urban metropolises.

Do you believe post-demonetisation, post-Trump and post what is happening in the global markets that this is the moment for Mr Jaitley to be bold or to be careful and cautious?

I think this is a moment for him to be bold. This is an opportunity for him to grasp. I do believe that we must not ignore the immense opportunities that arrive from Trump adopting a protectionist approach, the global economy slowing down, China’s economy also slowing down. This is the time when we need to accept that we still have a vibrant economy and we could attract a disproportionate amount of investment if we only address some of these issues that we have talked about today, in particular the issue of Ease of Doing Business and within that frame address two-three very major issues like land acquisition, regulation, the availability of critical infrastructure for businesses so that the entry hurdles for new business is reduced or is lower.

Watch the full discussion

Like other products of the Brookings Institution India Center, this article is intended to contribute to discussion and stimulate debate on important issues. The views are of the author(s). Brookings India does not have any institutional views.

      

 

 

2016 has been a dramatic year. I am not sure about the others but the developments over the past year have made me reflect on four issues. The relevance of the current system and process of democratic politics in what is now referred to as the “post-truth” or “post-fact” world; the beginning of the end of the oil era; the compatibility of our inflexible system of bureaucratic governance with the pressures of a complex, connected and changing world and the fragility of corporate reputations.

Politicians have always played fast and loose with the truth. As such, the “facticide” that marked the campaign for Brexit and Donald Trump’s march to the White House should not have come as a complete surprise. But it did. This was, in part, because of the gall with which the falsehoods were uttered and, in part, because they received global attention through the internet and social media. In fact, so much so that the Oxford Dictionary declared the adjective “post-truth” as its word of the year for 2016. I am no political scientist but as the political unthinkable got pushed into the mainstream, the thought that crossed my mind was whether the existing electoral structures and systems for manifesting public opinion were, in fact, democratic. To be precise, if the American system of primaries and electoral college voting for the president; the UK and Indian “first past the post system” for elections to Parliament or the German system of proportional representation, grounded as each are on the bedrocks of nationalism and political sovereignty, were in sync with the imperatives of a connected economic and social order. These systems had built in checks and balances to prevent the rise of precisely the demagogues and demagoguery that surfaced in 2016.

Two questions need to be asked. One, whether these electoral processes push the voter into a Faustian corner wherein whilst it offers them the periodic opportunity to challenge the establishment, it limits their choices by straitjacketing this challenge into conduits managed and controlled by the establishment? Two, in consequence, is it not time for a root and branch review to contemporise the existing panoply of liberal democratic processes?

Just over a hundred years ago, in 1911, Winston Churchill, as the first Lord of the UK Admiralty, heralded the oil age by ordering the UK Navy to use oil, and not coal, as bunker fuel for their ships. Coal continued to be an important energy source but thenceforth oil’s share in the energy basket rose inexorably. Today, oil is the dominant fuel for transport and prima facie there is no Churchillian reason for assuming this situation will change in the near to mid-term. There is no commercially viable substitute for oil as a transportation fuel and the economics of electric vehicles is not competitive. But Moore’s law and “uberisation” might change all this. Moore’s law posits that computing power will double every 18-24 months. And “uberisation” is altering the current owner-operator model of mobility. These two forces combined could redefine the shape of the transportation sector.

Amory Lovins, director of the Rocky Mountain Institute in the US, uses an evocative acronym to depict the emergent change. The sector, he says, will evolve from PIGS to SEALS: The current model based on personalised, internal combustion, gasoline based and steel encased vehicles will shift to one based on shared, electric, autonomous (that is driverless), and lightweight vehicles. Until 2016, all conversation about a commercially competitive and scalable alternative to gasoline and the internal combustion engine were caveated by the constraints of costs, limitations of battery storage (and hence driving range) and recharging infrastructure. Last year, the conversations began to acquire a ring of commercial conviction. An increasing number of people — not just entrepreneurs like Elon Musk (Tesla) or automotive companies like Mercedes, General Motors and Toyota but also governments — bet on Moore’s law and predicted that these caveats would, sooner than later, be removed by the advancement of technology. Given that transport accounts for 60 per cent of oil demand, a world of SEALS would effectively seal this commodities future. I wonder whether, in hindsight, 2016 will be remembered as the inflection year when oil entered its period of decline.

The jury is still out on the precise economic ramifications of demonetisation but I am sure that even the PM will accept that it has been poorly implemented. One can adduce many extenuating explanations, of which the strongest argument would be that the civil servants responsible for implementation were not given sufficient notice. But these explanations leave two fundamental questions unanswered. Is our steel-encased, rigid and hierarchical bureaucracy, staffed as it is in the main by “gifted amateurs”, knowledgeable enough to help their political masters navigate the shoals of a complex, competitive, connected and technocratic world? Do they have the security of institutional safeguards to offer objective advice? To be specific, did whoever was consulted by the PM about demonetisation have detailed understanding about our banking and digital infrastructure? And if so, did they feel secure enough to share this information with the PM, warts and all? I do not have an answer to these questions but I will say that the manner in which this decision has been implemented highlights the importance of institutionalising the lateral entry of experts into the upper echelons of our economic and technical ministries, a la the US system.

The Tata Group has, for decades, sat on the perch of corporate governance. It is not a position the group inherited. It earned that position slowly but convincingly. Today, the group is embroiled in a conflict that has severely eroded its market capitalisation and, more important, its reputation. Two issues deserve reflection. One, the importance of individuals. They can both make or mar institutions. And two, the fragility of reputation. For whilst it always arrives on foot, it can leave in a Ferrari.

This article first appeared in The Indian Express, on 2 January 2017. Like other products of the Brookings Institution India Center, this article is intended to contribute to discussion and stimulate debate on important issues. The views are of the author(s). Brookings India does not have any institutional views.

      

 

 

Reams have been written on l’affaire Tata. I cannot add much more of substance. And I certainly do not wish to add grist to the mill of speculators. The reason I agreed to write this article was because I thought my personal experience might contain grains of relevance for those in Tatas working to staunch the damage to employee morale and reputation.

Some years back, I was alarmed to read in the papers that the Royal Dutch Shell Group had been accused by the US stock exchange of exaggerating its oil and gas reserves. My alarm later turned to dismay, and then anger, when I learnt that the then chairman and group managing director responsible for oil and gas exploration and production had indeed fudged the disclosures. Both men were sacked by the board, but the company was raked over the coals by its shareholders, and had its reputation besmirched by the press. Amongst the first decisions taken by the new chairman was to call a meeting of the top 50 executives in the company. He wanted to discuss the contents of his speech to the 100,000 employees across the world. I was at this meeting. Initially the discussion focused on what had happened, why it had happened and the legal and financial ramifications. But then it moved on to the substance of his forthcoming speech. I was of the view that the chairman should start by offering an unqualified apology to the employees. I said that whilst the proximate reason for the crisis was the actions of two individuals, the underlying reason was the failure of the top leadership to discharge their responsibility to safeguard the group’s fundamental principles. My larger point was that people joined Shell not simply for professional and monetary reasons but also because of compatibility between their personal ethics and those defining the company’s code of conduct. They trusted the leadership to nurture and protect these values. By allowing a situation to develop that called into question these values, the committee of managing directors had let the employees down, and it was therefore important that the new chairman offer a public mea culpa on behalf of the committee, and especially since he himself had been a long-time member of this committee. The suggestion was neither rejected out of hand, nor did I lose my job.

I am recollecting this case because whilst the two companies are very different, there is a commonality in their business principles. Neither company will support the proposition that there is a trade-off between profits and principles. Companies should make profits, for without it, they cannot afford principles, but those companies that do so by compromising principles do not deserve profits. I am also recollecting this case because as with Shell, Tata employees draw pride in the knowledge that their company is emblematic of good corporate governance. As such, just as I was dismayed and then angry at the shenanigans of Shell’s top leadership, I suspect there are many employees of Tatas who are upset at what they read last week.

I am not suggesting that members of the board of Tata Sons fall on their swords. But I am wondering about the fallout beyond the financial and operational issues. And I ask how best might the Tata leadership contain the damage. Might it now be timely to contemplate a root-and-branch review of the nature of the structure of the Tata conglomerate? As is now abundantly clear, this structure is uniquely complex and somewhat opaque. The operations are handled by the executives of various listed companies who report to their boards. The predominant shareholder of these companies is Tata Sons, which in turn is owned by the Tata Trusts. The chairman of Tata Sons is designated executive chairman and is also chairman of the major Tata companies. This structure raises several questions. What, for instance, is the executive role of Tata Sons? Are they accountable for the performance of a conglomerate that comprises a number of listed companies with significant minority shareholding? What are the metrics by which the executive chairman of Tata Sons is evaluated? And who is responsible for this evaluation? What are the mechanics by which differences between the chairman of Tata Trusts and the chairman of Tata Sons get resolved, assuming the two posts are held by two different people? There are many other questions, but the larger point is that the time may have come for a broad-based introspective review. For if nothing else, l’affaire Tata reminds one of the forewarning that “reputation comes on foot but leaves in a Ferrari”.

This article first appeared in India Today on November 2, 2016. Like other products of the Brookings Institution India Center, this article is intended to contribute to discussion and stimulate debate on important issues. The views are of the author(s). Brookings India does not have any institutional views.