Lulled by TINA

The ‘there is no alternative’ narrative seems to be making the Modi government and Indian financial markets complacent. Caution is advised

Written by Udayan Mukherjee | Updated: October 4, 2017 9:37 am
Indian economy, NDA, UPA, PM Modi, Modi government, NSE Nifty index, indian markets, BSE, GST, GST slabs, MGNREGA, MGNREGA scheme, MSME, indian express, express column Many radical moves have been attempted, perhaps with good intent — and measured on a scale of sheer boldness, they are impressive. (Illustration: C R Sasikumar)

The discussion on the health of the economy over the last few days has deteriorated into an ugly NDA vs UPA slanging match. This is pointless and unproductive. Most citizens would agree that the UPA 2 was an unmitigated economic disaster, which is why they were duly shown the door in 2014. Yet, the current government cannot use the performance of UPA 2 as its benchmark, as that is too low a bar. Being better than the UPA 2, in itself, isn’t good enough. The nation expects better, the financial markets certainly do.

The Modi bull run in the stock market began around February 2014, when investors started to price in a big BJP victory. It is no secret that the stock market is a right-wing bastion and most brokers and investors love Narendra Modi. Between February 2014 and now, the NSE Nifty index has moved up from around 6,000 to 10,000, a sharp spike of 66 per cent. So, the stock market must be mirroring a massive turnaround in the profits of most large Indian companies, right? Wrong. In April 2014, the earning per share (EPS) of the Nifty, comprising of India’s top 50 companies, was 410. In April 2017, it was 420. A gain of a mere 2 per cent in the same period that the stock market rose 66 per cent. What explains this conundrum? Hope. Hope that the elusive good times are just around the corner. But hope isn’t infinite and it is beginning to wear a bit thin now, even amongst PM Modi’s staunchest supporters. The disappointment among these loyalists isn’t ideological, it is economic.

To its credit, the current NDA government, unlike the paralysed UPA 2, is a functioning government. It cannot be accused of policy inaction. Many radical moves have been attempted, perhaps with good intent — and measured on a scale of sheer boldness, they are impressive. The problem is that many of these policies have been ill conceived, inadequately debated or pondered over and badly implemented. In that, the government can certainly be accused of having been trigger-happy. We are a nation of poor people, even a crusader needs to tread gently. Else you run the risk of trampling over people’s lives, livelihoods and aspirations.

Thomas Piketty’s incisive paper reveals that the bottom 50 per cent of the Indian population accounts for only 11 per cent of the national income. This is the segment which is hurting the most today. First demonetisation, and now GST, have wiped out lakhs of jobs in the informal sector, leading the rural development ministry to ask for a 35 per cent increase in the budgeted allocation for the MGNREGA scheme. The medium and small enterprise (MSME) segment was just limping back to life from demonetisation when they were stung with a ham-handed execution of GST. Now they are frozen in a system that doesn’t work and in their desperation to stay afloat, they will probably lay off more people. This comes at a time when a patchy monsoon has led to a disappointing kharif season, heightening agrarian stress.

It is safe to assume that PM Modi will fall well short of the targets he set out on increasing farm incomes — another hope belied.The middle 40 per cent of the population in Piketty’s study accounts for 23 per cent of national income. This is mainly the salaried class and self-employed people. While the service sector is the saviour of this class, many of these jobs are in the manufacturing sector, which is contracting. Manufacturing firms cannot invest in new capacities or hire more people simply because they are already saddled with unutilised capacity. New project announcements fell 60 per cent (yoy) in July-September 2017, according to the Centre for Monitoring Indian Economy (CMIE). The recent policy surprises have also made them very wary about the economic environment. The outcome: Fewer jobs, muted salary growth, a general air of insecurity and dissatisfaction.

The top 10 per cent of the population, accounting for 66 per cent of national wealth — and growing every day — may feel that India is shining. The rise in the stock market certainly helps them. The top 1 per cent, growing the fastest, has the wherewithal to fund aggressive election campaigns, but in sheer numbers, they stand dwarfed at the hustings. Rich or poor, a citizen has only one vote. And it is this vote that should worry the prime minister. Maybe he has kept a silver bullet ready for next year — a Universal Basic Income type of cash transfer plan before the 2019 elections to win the masses over — but at this point, he is alienating large swathes of Indian citizens, many his ardent admirers, on the economic front.

So, why does the government or the stock market not appear terribly perturbed? It is the “there is no alternative” or TINA factor. Modi knows that there is still no credible alternative to him for 2019, at least as yet. All debates between people disgruntled with the economic environment generally end with “then who else?”

In the stock market, the same TINA factor forces the hand of the Indian investor. Bank fixed deposit rates have collapsed and post taxes they barely beat inflation. Real estate has disillusioned investors and gold has lost its sheen. Investors are slowly realising that the stock market is the only route through which inflation-adjusted real returns can be created in the long term. It is no surprise then that between November 2016 and now, a period which includes both demonetisation and GST, domestic investors have pumped in Rs 70,000 crore into the stock market through mutual funds. All debates between investors during volatile market phases probably end with, “so where else?” TINA may be lulling the Modi government into a sense of smugness and infallibility and the stock market into complacency. Caution is advised. TINA can be a fickle mistress.

TINA may be lulling the Modi government into a sense of smugness and infallibility and the stock market into complacency. Caution is advised. TINA can be a fickle mistress.

The writer is consulting editor, CNBC TV18. Views are personal.

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