Saturday 21 September 2019

Another Big Economic Blunder

Another Big Economic Blunder

Written by Dr. Seshadri Kumar, 21 September 2019


The Indian government is flailing around trying to solve the problem of the economic slowdown that was caused by its own previous wrong economic policies, especially demonetization and a badly-thought-out GST. The latest move of the Finance Minister in lowering corporate taxes by 10% is not only going to be ineffective in solving the root cause of the slowdown, but has the potential to make things worse by reducing India’s financial cushion in the face of further global economic shocks.

The statements of the Finance Minister, Ms. Nirmala Sitharaman, yesterday, lowering the corporate tax rate by about 10% have led to euphoria in the stock markets. Industry leaders are ecstatic about the “pro-business” attitude of the country. Supporters of Mr. Modi are also thrilled and have begun to hope that the long-promised “acche din” will finally come after 5 long years.

However, while it is true that this is a business-friendly policy change, it is unlikely to change the current economic situation on the ground. Industry leaders are understandably happy — who would not be if they had to pay less tax? And shareholders of companies are also understandably happy — the companies their money is invested in are making lower losses.

But what are they going to do with the money they are thus saving? Are they going to set up new factories and increase employment? Are they going to re-hire the staff that they fired in the last few months? Are they going to increase the capacity utilization of their existing factories?


I repeat, NO. The problem with this government is that it has fundamentally failed to diagnose the problem — partly because the correct diagnosis would reflect poorly on its own past performance.

The correct diagnosis is that demonetization devastated the informal and the rural economy, and a badly-formulated GST destroyed whatever was left. Because of this, people have no buying power, no money, and no jobs. Small-scale industries and the rural economy have been destroyed in the past 3 years because of these misbegotten economic policies of PM Narendra Modi, leading to widespread unemployment and shattered businesses. So nobody has money to buy anything.

The root of the current slowdown in India is that there is no demand. People are not buying underwear and even Parle-G and Britannia products, such as biscuits. And when that is the case, it is quite clear that they will not buy cars and motorcycles, let alone homes.

The solution to the current malaise is putting money in ordinary people’s pockets by generating jobs on a massive scale. This can only be done by large public works, such as irrigation works and replenishment of water bodies (on a permanent basis). Water works are important also because India faces a looming water crisis. A large government program to shore up water resources would therefore achieve two objectives simultaneously – eliminate unemployment and ensure the country’s water future, which in turn will kickstart development in the future. Building highways is not the solution because these days, it is a largely mechanized operation. In addition, is unlikely to yield immediate returns, because we are not being constrained by transport bottlenecks. Trucks are not being sold today because there is reduced merchandise to ship because of the slowdown. Trucks are sitting idle in the depots of transport operators because they have no goods to transport. So what will more highways achieve?

Instead, the government has been barking up the wrong tree, by emphasizing supply-side economics. They put more cash into banks by making the RBI part with a huge dividend. They lowered interest rates. And now they are reducing taxes on corporates.

But why would corporates hire any more workers or build any more factories when people are not buying their existing stock of goods? Auto companies like Ashok Leyland (a truck manufacturer, notably, not a car manufacturer – which tells you the problem is more widespread than “millenials not buying cars” - as the FM opined recently) are shutting down factories for half of September because they already have excess inventory.

So, even if you did not tax companies at all, and even if you made interest rates close to zero, companies will not, in today’s business climate, either create new factories or increase production at existing factories, because there is no demand for their products. They will just sit on that pile of cash. If anything, they will invest abroad with that money, as Anand Mahindra is doing – Mahindra recently announced that they are doubling their infrastructure and job creation in the US. That’s a sensible business decision for Mahindra, because Modi and his government have brought India down to such a low level that the US is now looking like a more attractive destination for investment than India.

On the other hand, the amount that the government is forgoing because of this corporate tax cut is around Rs. 1.45 lakh crores. Just recently, the government forced the RBI to part with its biggest dividend ever to the government – of Rs. 1.76 lakh crores. Clearly, most of that amount is going into this tax rebate for corporates. And it is not going to result in any increased consumption of goods or greater employment of people. It will not change the slowdown.

So who will benefit from this largesse? India, Inc., will, and so will those who depend on it. Those who will reap the biggest dividends of this largesse will be those with the most shares in the companies — namely, the promoters. Individual shareholders, either directly or through mutual funds, will benefit to the extent of their shareholding; but clearly, the lion's share of this reduction in taxes will go to the promoters of companies — the Ambanis, Adanis, Birlas, Tatas, Mazumdar-Shaws, and the like. Nothing wrong with that if part of that goes back into the ecosystem by creating more jobs. But as we have already seen, the business climate today is not conducive to the creation of more jobs, because the problem is not supply-driven but demand-driven.

So the government, after blundering monumentally by Mr. Modi’s disastrous policy of demonetization in November 2016 and a badly-thought-out GST policy, and many other mistakes, such as its surcharge on FPIs (which it has belatedly backtracked now), has committed another major blunder which will not only not have any immediate effect, but will further deplete the already depleted treasury of the government, making it vulnerable to any external shocks such as a steep rise in oil prices, which has already started due to the drone attacks on the Saudi oilfields that has taken out half of the Saudi crude supply out of the market. Thanks to the RBI transferring vast quantities of its reserves to the government, which the government has been profligate with, India has very little financial cushion for any more global surprises. If there were a war in the Persian Gulf or a war with our western neighbor, that would be the last nail in the coffin of the Indian economy.

This is not to say that a reduction in corporate tax rates is undesirable or a bad policy per se. It would have been a great boost to business in a good economy where we have robust demand and where growth is constrained by supply-side policies, such as interest rates or high taxation. But when there is a growth slowdown because of lack of demand, this is not the prescription the doctor ordered. It will fail to solve the country’s economic problem, and in fact will make things worse. The only people who will benefit are the promoters and shareholders of companies, because this cash saving will mitigate their current losses, and that is why Dalal Street is cheering.

But there is nothing for the common man to cheer about. This move is a big blunder, because this money that was received from the RBI could have been used to really kickstart the economy, but the government has chosen to use it on a measure that will have no tangible benefits. Now the government has no more money left for any more major interventions. This was their last chance, and they have blown it. In addition, this will lead to an increase in the fiscal deficit, with all the accompanying evils of that development.

It is in times like this that we understand why Harvard is more important than hard work.

Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.

Sunday 1 September 2019

When Bigotry and Stupidity Combine – The NRC Mess in Assam

When Bigotry and Stupidity Combine — The NRC Mess in Assam

Written by Dr. Seshadri Kumar, 01 September 2019


The story of the NRC in Assam is that of two competing streams of bigotry — one of Assamese chauvinism and the other of Hindu chauvinism. It had its roots in the Assam movement of the late 1970s and early 1980s, which ended in the misbegotten Assam Accord of 1985. One of the provisions of the Assam Accord was the fateful decision to expel foreigners from Assam. Successive governments since 1985, both at the Centre and at the State level, including Rajiv Gandhi’s own government, had wisely refrained from actually implementing the provisions of the Assam Accord. But the BJP and the AGP have, through their vote-bank activism (the former for the Hindu vote-bank and the latter for the Assamese vote-bank), opened the Pandora’s Box of strict implementation of the Assam Accord, with unpredictable consequences for the peace and stability of Assam, not to mention the profound humanitarian costs of declaring millions of people as noncitizens — people who have known no other country than India from the time of their birth.

This entire push to implement the Assam Accord in letter and spirit is irresponsible, cynical, and heartless; and now the crows have come home to roost, with the National Register of Citizens mentioning in its second count that 1.9 million people in Assam have been identified as foreigners and will have to be expelled from India.

The verdict has pleased no one. The BJP is unhappy because the NRC count has revealed that a large number of Bengali Hindus are illegal immigrants, and that a large number of Assamese Muslims have been identified as citizens — something that busts their narrative of India being inundated by waves of Muslim immigrants. The AGP is unhappy that more Bengalis, both Hindus and Muslims, have not been identified as foreigners. And, of course, those who have lived their entire lives in India and are suddenly being told that they are no longer Indians but foreigners are not happy.

The issue that no one in the more-than-hundred-year-old history of the Assam agitation seems to have thought of — be they political parties, leaders, or courts — is where the so-called foreigners will be expelled to — because no country will accept them. This is the stupidity and short-sightedness of the entire movement that, when combined with the bigotry of the prime movers in the issue — the BJP and the AGP — has led to a complex and unpredictable situation in Assam today. To make matters worse, the BJP is threatening to pass the Citizenship Amendment Act — a backdoor way to make illegal Hindu immigrants legal in Assam — something that will certainly lead to chaos and violence in the entire Northeast.

Background of Immigration Into Assam

Most people in India must have heard of the NRC in Assam by now. The NRC is the National Register of Citizens. Even though the name has “national” in it, this register pertains only to the state of Assam.

The NRC is a list of “legitimate citizens of India” in the Indian north-east state of Assam. The purpose of this list, according to the people who were responsible for it, is to identify who are legitimate citizens of India and who are illegal immigrants (specifically, from Bangladesh — or East Pakistan, as that region was known before 1971). This list was first created in 1951 in Assam. On January 1, 2018, the first revised list of the NRC in nearly 70 years was published. It identified 4.1 million people as non-citizens of India in Assam. Following this, the government said that this list was not final; that people could appeal their exclusion and a second list would be created after further checking. That second list came out on August 31, 2019, and it has now identified 1.9 million people as illegal immigrants; the petitions of around 2.2 million people to be included in the list have been accepted.

The purpose of this article is to tell you what this NRC is all about and why these 1.9 million people are going to be made stateless.

The issue of illegal immigrants, or “foreigners,” moving in to Assam is an issue dating to 1886, when the British, after defeating the Burmese in the First Anglo-Burmese war of 1824, gradually took control over Assam and then opened Assam up to migrants from the rest of the British Raj in India, particularly Bengal. This was followed by various waves of immigration into Assam, fuelled mainly by the tea estates which the British had established in Assam, for which the British brought in Bengali workers.

Although immigration to Assam was continuous during British rule, involving both Hindus and Muslim immigrants, there were two important waves post-Independence. The first wave came during Partition, when Hindus migrated to India from East Pakistan following persecution by the Muslim majority there. It is estimated that around 500,000 immigrants from East Pakistan came in to Assam during Partition. Many of these settled in Assam. There was serious concern about the changing demographics of Assam. In response, the Indian Government passed the Immigrants (Expulsion from Assam) Act, 1950. This act came into effect on 1 March 1950. It mandated the expulsion of illegal immigrants from Assam. But how was the Government to know whom to expel? For this purpose, it created the first National Register of Citizens in Assam in 1951 as part of the 1951 census. The implicit assumption in the Act was that the Indian government would be able to send immigrants from East Pakistan back there. Nobody seems to have considered the possibility that East Pakistan might refuse to take these people back. In the event, no one was actually sent back, so the hypothesis was never tested.

The second wave came to India because of the crimes committed against Bengalis in 1971 in the events leading up to the Bangladesh independence war. Since then, both Hindus and Muslims have continued to migrate from Bangladesh to India.

Things came to a head when, following the death of Hiralal Patwari in 1978, by-elections had to be held in the Mangaldoi assembly constituency in Assam. It was noticed that the number of registered voters had risen dramatically since the previous election – much more than could be explained by population growth. This triggered a popular outrage against the “takeover” of Assam by foreigners, spearheaded by the All-Assam Students Union (AASU), led by Prafulla Mahanta.

The Assam Accord and the IMDT Act

The Assam movement of 1979-1985 became extremely violent and, to put an end to this, former PM Rajiv Gandhi agreed to the “Assam Accord” that he signed with Prafulla Mahanta on 15 August, 1985. One of the key provisions of the agreement was that those immigrants who came in to Assam before March 25, 1971 would be considered legal immigrants, whereas those who had entered Assam on or after March 25, 1971 would be deemed illegal and expelled. To enforce this, the Illegal Migrants (Determination by Tribunals) Act, also known as the IMDT Act, 1983, was used. This act provided the mechanism by which people could be identified as either citizens or illegal immigrants. Prafulla Mahanta subsequently founded the Asom Gana Parishad (AGP) party, the political incarnation of the AASU, and subsequently became the Chief Minister of the State of Assam.

This was an unwise agreement, despite having had the effect of stopping the violence, because no thought was given to what would be done with those deemed illegal immigrants. Deporting them to Bangladesh was the likely thought in the minds of the Assamese, but the Assam accord was drafted without ever taking consent from Bangladesh, and so there was never any assurance that anyone identified as a Bangladeshi immigrant by India would ever be accepted back by Bangladesh. In fact, Bangladesh has recently reiterated that under no circumstances would it accept anybody back from India.

Despite this fact, the Assam Accord did not result in large-scale deportation of illegals, because the IMDT act had many safeguards for the immigrants that made deportation difficult. The most important among these was that the onus of proving that someone was an illegal immigrant was on the accuser, not the accused. If someone was accused, they could prove their citizenship by simply providing a ration card as proof. If the case still went further, it would be brought before a tribunal of retired judges who would decide on it. The central government also had the option to decide to throw out any petition for naming someone as an illegal immigrant on the grounds that the petition was frivolous. All this provided substantial safeguards for immigrants.

The End of the IMDT and the Revival of the NRC

It should be noted that the IMDT Act had some key differences with the Foreigners Act, 1946, which applied to the rest of India. Under the Foreigners Act, 1946, the onus of proving citizenship is on the accused and not on the accuser. Under the IMDT Act, on the other hand, the onus is on the accuser to prove that the accused is not a citizen. Because of this, very few people were actually deported under the IMDT act.

To change this, Sarbananda Sonowal of the AGP (now of the Bharatiya Janata Party, or BJP) challenged the IMDT Act in the Supreme Court in 2005 and won the case. The Supreme Court said in its observation that because of the generous safeguards in the IMDT Act, less than 0.5% of all cases filed under it resulted in deportation, and struck down the IMDT Act as unconstitutional. The Court said in its judgement that “the Bangladesh nationals who have illegally crossed the border and have trespassed into Assam or are living in other parts of the country have no legal right of any kind to remain in India and they are liable to be deported.”

However, the honourable SC does not seem to have seriously considered the question of where the said illegal immigrants were to be deported, given that no country would accept so many migrants back into their country. Furthermore, the decision on whether someone was an illegal immigrant or not was to be decided by India, not Bangladesh. Why any country would accept the verdict of another country on a matter regarding those it would be forced to accept as its own citizens is hard to imagine.

With the disbanding of the IMDT Act, the question of how illegal immigrants were to be identified and dealt with came back to the fore. The issue was finally settled by the Supreme Court in 2013 in its judgement in response to writ petitions by Assam Public Works and Assam Sanmilita Mahasangha & Ors. In its judgement, the SC ordered that the NRC should be updated to identify illegal immigrants, and the illegals should be expelled.

Accordingly, the process of updating the NRC was begun in 2015, and the first draft of the revised NRC finally made it on 1 January 2018. This was then revised, taking appeals and objections into account, and the revised list was announced on August 31, 2019.

Hindu vs Muslim Immigrants

One of the central poll planks of the BJP had always been that Muslim migration from Bangladesh to India had been unchecked and had led to a rise in the Muslim population of India. They had always accused the Congress of not doing enough to stop the immigration because Muslims formed a useful vote bank for the Congress. The BJP had promised that, if elected, they would put a stop to illegal Muslim immigration into India.

To this end, they decided to support the AGP. A political alliance was formed between the BJP and the AGP to form a government in Assam. The BJP reasoned that the AGP was against immigration into Assam, and the BJP was against immigration into Assam as well, and so this was a natural partnership.

But this was anything but a natural partnership.

The AGP’s objection to immigration was ethnic. They were opposed to the immigration of anyone who was not ethnic Assamese. This included both Hindus and Muslims. In particularly, the AGP was violently opposed to Bengali Hindu immigrants living in Assam. The AGP’s prime consideration was that Assamese culture was being wiped out due to Bengali influence.

The BJP’s objection to immigration was religious. They were opposed only to the immigration of Muslims into Assam (and into all of India.) The BJP had no problems with Bangladeshi Hindus who had settled in Assam.

The alliance between the BJP and the AGP was, therefore, an unholy marriage of convenience on a shaky foundation.

The Citizenship Amendment Act

The BJP realized this problem and, to solve it, introduced the Citizenship Amendment Act. This act would confer Indian citizenship on all Hindu, Sikh, Buddhist, Christian, Parsi, and Jain immigrants, but would specifically exclude Muslims. This suited the BJP’s strategy of hate politics very well, because it selectively excluded Muslims. But it was absolutely unacceptable to the majority of the Assamese, because the Assamese correctly saw the Citizenship Amendment Act as a means to legalize illegal Hindu migrants into Assam through the back door. The BJP tried to pass the bill in Parliament, but was unable to because of the opposition to the bill.

Despite all this, the BJP went ahead and encouraged the creation of the NRC to determine who was an Indian citizen and who was not, in line with the Assam accord. In doing so, the BJP was supremely confident that most of those who were about to be classified as foreigners would be Muslims.

The whole thing is ugly on both sides. On one side of the coin is ethnic hatred, of Assamese for Bengalis; on the other side is religious hatred, of Hindus for Muslims.

Now the revised list has been published, and according to most reports, a large percentage of the identified illegal immigrants are Hindus, in contrast to the BJP’s expectation that most identified illegal immigrants would be Muslim. This is why the BJP frantically (and unsuccessfully) tried to delay the publication of the NRC list, because when a large number of Hindus are denied Indian citizenship, it will hurt the BJP’s Hindu vote bank.

The surprise that the BJP has expressed is evidence of its ignorance — after all, at the time of India’s independence, nearly a fourth of all Assamese residents identified themselves as Muslim; so the fact that a large number of Muslims in Assam are legitimate residents of Assam should not be a surprise to anyone who had done the minimum research on the demographics of Assam.

If the leaders of the BJP had actually done some demographic research, they would have realized that this was going to be the outcome of the NRC. The facts have been in the public domain for a long time. But apparently, they believed their own rhetoric, which they used to whip communal frenzy among the people of India and win elections — that Muslim immigrants were streaming through the border and were going to make Hindus in India a minority. Their ideology blinded them to the fact that the community that was going to be affected most by the NRC in Assam was the Bengali Hindu community.

It is astonishing that the BJP could not see the writing on the wall. The officials conducting the NRC drive are all Assamese, and bear no loyalty to the BJP’s religion-based agenda. Now the BJP will have to deal with the backlash from the Bengali Hindu community. Their only hope to avoid this is to bring in the citizenship amendment bill in Parliament. Just as they finagled their way with the Triple Talaq bill and the abrogation of Article 370, they might be able to pass this law in Parliament as well. But while they may succeed in Parliament, Assam will likely erupt in revolt if they indeed pass the Citizenship Amendment Bill to save the Bengali Hindus facing an uncertain future after being excluded from the NRC. One wonders if the government will send another 100,000 paramilitary forces into Assam to “maintain the peace” as they have done in J&K for the last month, and introduce the Citizenship Amendment Act in as stealthy a fashion as they did the abrogation of article 370. Will yet another state be put under martial law, with curfew for weeks, the state leaders imprisoned, and all communication cut off, in order to fulfil the BJP’s political objectives?

One further point needs mention. The issue of “foreigners” is a sensitive one not only in Assam but in the entire Northeast. This is because of colonial history; when the British ruled in Northeast India, most of the administrative cadre came from Bengal. This has led to a lot of anti-Bengali resentment in many parts of the Northeast. Therefore, any attempt by the BJP to bulldoze its way with the Citizenship Amendment Act will have consequences not only in Assam but in the entire Northeast. Meghalaya and Tripura are prominent examples.

Whither Human Rights?

No matter how the NRC is conducted — whether the target is all non-Assamese or whether it is only Muslim immigrants into Assam — the entire idea is completely heartless and cruel. Not only is the standard of proof being demanded unusually stringent, in a country where the standard of record-keeping is so poor that a large number of people do not even possess birth certificates, but the entire process seems to have been conducted without any endgame plan in mind. That any court, let alone the highest court of the land, the Supreme Court, even allowed this register of citizens to proceed without careful consideration of the consequences is astonishing in the extreme.

For, the entire NRC exercise offers no enlightenment as to what is to be the fate of those declared non-citizens of India. The Bangladesh government has made it clear that it considers the entire matter an internal matter of India, that it does not consider anyone who does not make it to the list of Indian citizens a Bangladeshi citizen, and has clearly said it will not take back any of these people. So what is the plan for these people? Does the government, and does the SC, propose to make these people who were hitherto living freely as Indian citizens prisoners and house them in internment camps? And for how long? No country will take them. If India will not accept them as Indian citizens, does India intend to keep 1.9 million people in jails for the rest of their lives? That would constitute an appalling violation of fundamental human rights.

It is also worth noting that 2019 is a long way away from 1971. Think of someone who may have moved from Bangladesh to India in 1972 – 47 years ago. If this person was in his mid-thirties in 1972, he might not even be alive now. But his children might have been born and might have lived in India for nearly half a century. India is the only country they know. If you suddenly pronounce them non-citizens, where will they go? It is extreme cruelty to send them to another country at this age, even assuming that you can find another country to accept them in the first place.

Incidentally, it is worth pointing out that getting “legal documents” in India is not very difficult if you have the money. Those with the money, even if they are illegal immigrants, whether Hindu or Muslim, would have found it fairly easy to establish their domicile in a country like India, where everything from birth certificates to passports to news can be faked. The present climate must have been a bonanza for forgers in Assam, as the going rates for fake documents must have gone up at least tenfold. The people who will be affected most, therefore, will be those without the means to buy their freedom.

The entire issue of the NRC is a monumental, national disgrace for the people of India. It was a compulsion that forced Rajiv Gandhi to agree to the ethnic basis of the Assam Accord, but he did it as a stopgap bandaid to stop the violence. He also linked the Accord with an instrument like the IMDT Act that would actively nullify the Accord. It would have remained as an unfulfilled promise, had not the greed of the BJP for votes based on dividing people on the basis of religion gotten the better of them.

This entire ugly affair is a stark reminder of what happens when a base impulse – bigotry – is combined with a lack of intelligence to see the consequences of that bigotry.

The story does not end here. We have come so far in this tragedy that we must soldier on to the bitter end. There is no happy ending to this story. Hatred, once allowed free rein, always has victims. Allowing our basest instincts to rule our actions can and will only result in tragic consequences, and the NRC drama is no exception to this rule.

Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.