An Open Letter To The Prime Minister

Dear Prime Minister, Dr Manmohan Singhji

I could have written a letter to you in a closed envelope, but instead opted to write an open letter, as I believe that the contents of this letter reflect the feelings of the people of India at large. I am writing only on their behalf. This open letter is not intended to point out your shortcomings, but to highlight the plight of Indian citizens, who are suffering silently. This open letter is not intended to blame your government or you, but to find solutions so that the economy, which is limping, can bounce back with greater vigour.

Sir, you engineered one of the finest reforms in the world in 1991, and the time has come that you do it again for the larger section of the society. Today, our country needs concrete action from you, as the aam aadmi is suffering on account of high inflationary levels, high levels of corruption in the governmental departments, lower economic growth and last, but not the least, a pressing lack of reforms. It is becoming very difficult for common people to ensure even a basic standard of living from their income today. I know that the government definition of poor is a measly Rs 32 per day, but in reality, no citizen can meet even the basic needs at that cost. The corruption level in various government departments is on the rise, and government employees are asking for bribes openly. The fear of being caught has just vanished.

The poor are becoming poorer, and the issue of Maoists that we are facing in some parts of the country may soon spread to other parts as well if quick action is not taken. I say this because I believe that the frustration among the aam aadmi is increasing daily.

Sir, I have high regard for you, and I know that you and your government are fully equipped to face any challenge the country is facing or would see ahead. Your knowledge and wisdom has been acknowledged internationally, and hence, I would request that you read this open letter in the right perspective without any malice, so that the crisis that the country is facing can be tackled effectively.

India Shining

Sir, the phrase ‘India Shining’ is the brainchild of the NDA, and hence, you may feel that this is not the appropriate word to be used while writing to you. But the fact is that India was and is shining. The only thing that has changed over the last couple of years is the brightness of the shine. This is the same country whose growth story was internationally acknowledged. Many thought that India would soon achieve a double-digit growth rate, as its momentum was excellent.

Today though, no one is talking about a 10+ per cent growth rate. Many doubt whether the country can grow at even eight per cent. I have gone through some of the reports from leading international research houses like Morgan Stanley, who doubt that India will be able to achieve even a seven per cent growth rate. As per their estimates, the country would grow at a mere 6.3 per cent in the current year. OECD and the World Bank have pegged India’s growth rate at 7.1 per cent and 7-7.5 per cent respectively. What is worrisome here is that more and more research houses are cutting down India’s growth rate estimates. Goldman Sachs has brought this down from 7.2 per cent to 6.6 per cent, and BoFA (Bank of America) from 6.8 per cent to 6.5 per cent. These are certainly not good indications, as these very institutions were going gaga over the country’s growth just a couple of years ago.

Sir, I know that while presenting the Finance Bill, our Finance Minister has assumed a growth rate of 7.6 per cent for the current year. But no one is taking the government figures at face value. We all know how the official export figures and IIP numbers had to be revised downwards. We are aware that the government continued to provide solace by pointing to how robust India’s tax revenues are, though the fact was different. We all know how the government talked about reining in inflation, only to realise later that it continues to defy gravity.

The larger issue is why are people questioning India’s growth rate now? As a proud citizen of the country, it hurts me when I hear people suggest that India would not be able to grow at double digits in the foreseeable future. If people could believe that India could grow in double digits in the recent past, why not NOW? What is lacking in us that we can’t achieve a double digit growth rate? We, as a nation, have navigated many challenges not only since independence but for many centuries, and I am sure that it is just a matter of time before the country can again be on a rapid growth path. But to achieve that, we must bite the bullet.

Biting The Bullet

We have been hearing from you as well as senior cabinet ministers that we need to bite the bullet and take hard steps to revive economic growth. Unfortunately, though, there are no hard steps being taken that could send the right signals to Indians as well as foreigners indicating that we are a country in favour of reforms and mean business.

What an irony that on the Budget day our Finance Minister announced that hard steps would be taken to put the economy on the growth path, but the bold and reforms-oriented Railway Budget that was presented a day before the Finance Budget had to be rolled back. The former Railway Minister, Dinesh Trivedi, was absolutely correct in deciding to increase rail fares for passengers across the board. Instead of supporting his bold decision, he has been shunted out from the ministry. Not only was he punished for what he did, which was in the interest of the nation and the railways, but some of the price hikes that he had announced in the Railway Budget were also rolled back by your government just to please one of your coalition partners.

Sir, I am not sure how long this country can afford to not increase prices and yet expect our railways to run efficiently and safely. There is a clear need for higher allocations to the railways to upgrade the safety and increase the network to meet the expanding needs of a growing population. The railways need to raise their own funds by increasing tariffs in order to improve their efficiency and safety. No Indian would like the Indian Railways to go the same way as Air India did, and I am afraid, this would happen if no good measures are taken. The railways are just one example, and the story is no different for the other segments too.

Sir, I believe that one of the biggest problems with the UPA II government has been that it has constantly postponed important decisions. When matters have gone out of control, it has taken drastic measures of increasing prices at one go, which have impacted the aam aadmi the most.

Sir, I fail to understand why petrol, the prices of which were decontrolled long ago, has not seen a price hike, especially when crude prices were going up and the rupee was falling against the dollar. Not allowing petrol prices to move up as per the market dynamics has resulted in huge under-recoveries for the state-owned oil marketing companies. After a long wait, the price of petrol has been hiked by Rs 7.50 per litre, but I hear that a part of this hike would be rolled back. Why the rollback? Petrol prices are deregulated, and it is the oil marketing companies that need to decide the prices. However, the ground realities are known to everyone. In fact, the timing of the petrol price hike clearly suggests that it is the government that is taking the call, as the hike was announced just after the end of the Parliament’s budget session. 

Sir, I would sincerely request that petrol pricing should be allowed to be a function of market forces rather than political forces. This would help the common people to come to terms with the dynamic price changes. Hiking prices at one go only puts the aam aadmi at a disadvantage.

Under-recoveries on petroleum products are putting India’s economic health at great danger. No one wishes that India’s economic heath should deteriorate like that of Greece. Some leading businessmen are describing India’s economic condition as being very close to what it was during the 1991 economic crises. Due to higher subsidies and no curtailment on unwanted government expenses, the fiscal deficit is increasing. We are very close to the tipping point which could put the country in a precarious position.

Sir, the time has come to take some bold decisions. Our yearly domestic LPG under-recoveries are in the region of Rs 30000 crore. There are many ultra-rich citizens in the country who are enjoying a subsidy on domestic LPG. Why should the rich get LPG at a subsidised rate? One of the ways in which, I believe, the government can do away with the subsidy on LPG is by increasing the price of an LPG cylinder by Rs 20 every month until we meet the under-recoveries, and then make it market driven. This can be done for those whose family income is more than Rs 5 lakh per annum. By doing this, our LPG subsidy burden could reduce to less than Rs 20000 crore.

In the same way, the under-recoveries on diesel are increasing at a rapid pace, and yet, the government has not announced any price hike for quite some time now. Last year, our under-recoveries on diesel stood at Rs 81192 crore, which is almost equal to the full year’s service tax revenue of Rs 90000 crore. Not hiking the diesel prices has resulted in the difference between the price of petrol and diesel widening. In 2002, the difference was only Rs 10 per litre, but today, it stands at a whopping Rs 32. The need of the hour is to reduce the diesel subsidy by increasing the prices of diesel by Rs 1 every week until the price reaches an equilibrium. This will help customers to come to terms with the new reality in a phased manner.

Our under-recoveries on petroleum products for the last year stood at Rs 1.38 lakh crore, and if no measures are taken, this will balloon to more than Rs 2 lakh crore in the current year. This is a big amount, and much higher than what we used to have just a couple of years ago. I distinctly recollect that our under-recoveries on petroleum products in 2005-06 were in the region of Rs 40000 crore. In just six years, it has gone up by four times! This is despite the petrol prices witnessing a so-called ‘deregulation’ in the interim. These under-recoveries are impacting our fiscal deficit majorly, and that is one of the major worries not only for domestic investors but also for international investors.

Today, India needs very strong reforms that can lift the investment climate in the country. GAAR and cases like those of Vodafone are classic examples of how the government is scaring away international investors. Indian entrepreneurs have gone on record suggesting that it is making better sense to invest abroad due to the policy paralysis here.

Sir, I feel that there is a lack of willingness to bite the bullet. There have been enough statements about the need to push reforms, but hardly any sincere attempt has been made to do so seriously.

Sir, this country needs the correct steps in the correct direction and soon at that. No one understands the Indian economy better than you do, so, why don’t you, as the head of the government, make some strong attempts to put the economy back on the growth path. I did salute you when you had pushed India’s nuclear programme forward when you took a personal mission on the same just few years ago. At that time, you were determined and had made an emotional speech in the Parliament for the nuclear deal. But this time, one gets the feeling that you are not determined enough to push for efforts that can put the economy on the trajectory of growth again. Why is it so?

Coalition Drama

Sir, I know that an excuse for not being able to carry out meaningful reforms would be the coalition government that you head, as your party does not have a majority in the Parliament.

Sir, I beg to differ on the same. India has seen some of the finest reforms even when there were coalitions of various parties, not only during the NDA regime but also during the UPA I regime. The fact of the matter is that after the general election of 1984, no political party has ever got a clear cut majority in the Parliament, and yet, reforms have been rolled out.

Sir, the major reforms initiated by you in 1991 happened despite the fact that your government was in a minority in the Parliament at that point of time. You were able to push the reforms then as there was a will to reform. However, this time, not only me but many Indians feel that there is no will to push for reforms.

How long will this government give the excuse that it is due to the fact of the coalition that you are not able to push for reforms? Coalitions are formed only with like-minded parties, and if this is the case, why are your coalition partners not buying your reforms agenda? Why do you want to have coalitions if they are not like-minded? Why is the interest of a political party being put before that of the nation today?

What is worse is that your coalition partners are accusing the government of not keeping them in the loop whenever any major announcements are made. Why can’t this government carry on its coalition dharma in the right manner? Why must the country pay a price because you are not able to manage your coalition politics well?

Sir, the country needs an answer.

The Falling Rupee

Sir, our currency, which is a matter of pride for any citizen of the country, has been battered badly in the international market. The Indian currency would in all likelihood be the most battered currency in the world in the last 12 months. In fact, the extent of its depreciation has been so bad and its fall so rapid, that there are already some jokes doing the rounds that the rupee would soon be a senior citizen.

The fall in the value of the rupee is a fall in the country’s pride. As no CEO would be proud when the scrip of the company he/she heads gets battered on the stock exchange, you, as the CEO of the country, should feel ashamed at the rupee’s depreciation.

Why should the Indian economy, which is still expected to grow at a healthy rate of above 6 per cent, see its currency fall? The worst is that there are no clear signs that the government is doing enough to stem this fall. On the contrary, people are insinuating that this government is intentionally allowing the rupee to fall so that politicians can bring black money that has been stashed outside back into the country.

Sir, this kind of talk only reflects that this government has lost its credibility with the aam aadmi. Every instance of action or inaction by the government is being eyed with suspicion. Just like a CEO of a company is accountable to its shareholders, you too, being the CEO of this country, are accountable to the citizens of India.

Sir, your action or rather inaction, is a matter of debate in many meetings and a butt of jokes. You may argue that this government is actually active and the tag of being inactive is only but a perception problem. Even assuming for a second that this indeed is a problem of perception, the sad part is that there has been no sincere attempt to clear that perception.

Scams

Sir, what also needs to be understood is why do we have a problem of perception in the first place? Why are people no longer taking the government’s statements at face value? I believe that there are enough reasons for the opinions that are being formed.

The UPA II government started off on the wrong note. If my memory serves me correctly, the very first crises happened with Shashi Tharoor, who put the government in many embarrassing situations before he resigned from his ministerial position.

At the same time, the preparations for the Commonwealth Games 2010 were running behind schedule, and this was discussed by the media on many occasions. The official version, of course, kept harping that everything was on schedule. We all know what had happened and how things had to be done at the last moment just to ensure that we could manage the event somehow. In fact, the international media had highlighted the plight of the shabby preparations, only after which, your government decided to act on the matter. Isn’t it a matter of shame that the Chairman of the Organising Committee had to be jailed for what could otherwise have been taken care of had your government acted proactively rather than reactively?

One after another scam has been tumbling out of the closet after that, the worst among them being the 2G scam, where a minister from your government had to go to jail. There have been many scams, and I would not like to mention them all as you are well aware of them and these have been equally well highlighted by my colleagues in the media.

However, these scams have had their impact on India as a brand. As any company’s image takes a beating when allegations are leveled against its senior employees, the country’s image is at stake when its ministers are put behind bars. What is unfortunate is that this government did not take any action on its own, which could have salvaged the situation. Far from that, it waited till the court had to ask it to take action for the alleged irregularities. This made people believe that this government was, or rather is, not very keen to pursue the allegations, casting aspersions on its sincerity.

Sir, going by the last one year’s track record of the UPA II government, there are many more scams that are likely to tumble out. Any other scam could again unsettle the investment climate of the country. The immediate one that is likely to be a big issue is ‘Coalgate’, which may again divert the government’s bandwidth towards fighting crises rather than focussing on the growth agenda.

Sir, have you thought about why these scams and controversies are unfolding one after another at regular intervals? Is this happening by design or by chance? One gets the feeling that either external forces or someone within the government is helping create these controversies, and hence, showing the government and in turn the country in a bad light.

The time has come when the guilty need to be punished and the innocents absolved, so that the clouds of uncertainty are pushed away. But this process needs to happen fast and in a transparent manner.

I strongly believe that the Lokpal Bill was a step in that direction. It could have helped to reduce corruption in the government machinery. But from the way the Lokpal Bill and Anna Hazare’s aandolan has been managed by your government, one wonders whether you are serious about eradicating corruption. In fact, even the handling of Baba Ramdev’s agitation against black money was a blunder that your administration committed. All this has led to a general perception that this government is not very keen to punish corrupt government officials.

State Vs. Centre Relationship

The trust deficit is not only between the aam aadmi and the government, it is also between the states and the Central Government. Your government has been accused of intruding on the states’ power as you could not convince many states on the merits of implementing the National Counter-Terrorism Centre (NCTC). This trust deficit between the centre and the states is not a very healthy sign. What is worse is that your own coalition partners are accusing you of the same. I need not remind you of what happened in case of the Teesta water treaty, which you were supposed to sign on your maiden trip to Bangladesh.

But issues like the NCTC and the Teesta water treaty are not the only ones where we could see a trust deficit. There has been a trust deficit even between the Army and the Centre. The way the Army chief episode was handled shows that the government has been repeatedly fumbling on critical issues.

The trust deficit point further extends to India Inc. and foreign investors. Today, India Inc. is not willing to put money into projects. No new projects have been announced by any of the leading business houses in the last few years, and those that have been announced are on the slow track. Foreign investors do not have the same comfort level that they did before the presentation of the latest Finance Bill. So, it is evident that the trust deficit is a larger issue. In fact, the media has been speculating that, there has been a trust deficit between two of your senior cabinet ministers, and I am sure you are aware of whom I am referring to.

Sir, you are the head of the government. The job of the central government is to take all the stakeholders along with it in the same way that an elder member of a family takes care of the other members. Please make some attempt to ensure that the trust deficit gets wiped out, not only within the government but also among its various stakeholders. Otherwise, India will have to pay a heavy price and the next generation would put the blame squarely on you.

Infra Projects Running Behind Schedule

Sir, on one hand not many new projects are coming up, and on the other, projects that are under implementation are moving at a slow speed. Infrastructure projects are critical for the country’s growth. It is said that every rupee spent on infrastructure has a multiplier effect of 20. Better roads help the economy to expand and decongest the cities. So, the government must pay extra attention to infra projects.

Sir, as per information recently given in the Parliament, as many as 242 projects (costing above Rs 150 crore) are running behind schedule out of the total of 561 projects costing nearly Rs 7 lakh crore. This data comes from the government, and hence, I am taking it at face value unless there is an error in the same too. What is worrisome is that the percentage of projects that are running behind schedule is increasing. In 2007, only 34 per cent projects were running behind schedule, but today, this percentage stands at 43. If this policy paralyses continues, I will not be surprised if the same goes to as high as 50 per cent. A delay in infra projects cost the economy in two ways. First of course, there is a hike in the project cost, which again puts a burden on the fiscal health of the country. More worrisome though, is the fact that the benefits that could accrue to the economy due to the infrastructure facility being made available are lost.

Sir, there are many such points that I wanted to highlight, but keeping in mind the fact that your time is precious, I am not listing them all.

Sir, it is now the time for you to put your house in order. We need to address this serious issue of paralysis in decision-making on a war footing. We need to take some hard measures, and we must bite the bullet.

The time has come to take action rather than just providing lip service.

Sir, I sincerely believe in your leadership and hold that you can give the much-needed push to bring back vibrancy in the economy. You may need to take some strong steps, and I would urge you to take them despite them being unpopular. You need to put the country before the party and the government. I am sure your action would be appreciated by the larger section of the society. This is not the time to be politically correct but one to be economically correct, as the global economic climate is quite fragile.

There are a few suggestions that I am offering that can help bring the economy back on the growth path.

• Devise a clear-cut roadmap to keep fiscal deficit in control not only for this year but for the next two years, with various milestones and critical review method to ensure that it does not slip.
• Provide a clear roadmap for the implementation of the GST.
• Provide a clear roadmap for the implementation of the DTC.
• Resolve the issue of the supply of coal on a priority basis.
• Give practical solutions for land reforms so that industries get much-needed land for expansion.
• Frame a strong Lokpal Bill to instill fear of misdeeds in corrupt officials, which would reduce the circulation of black money and bring in much-needed transparency.
• Formulate a clear cut stand with regard to rupee depreciation and ways to tackle the same.
• Further new initiatives to attract FDI into the country.

I know that this is easier said than done, but we must start now to get closer to the same. Let this country not go the same way as Greece. We can grow, and we will grow, provided the government takes proactive steps.

Sir, it is my promise that if you choose to reply to my open letter, I would publish the same in the upcoming edition of this magazine.

But for any reason, if you choose not to reply to my letter, I would expect that you at least act on the issues I have raised, as they are far more important.

My sincere thanks for reading this long letter, and I wish you the best of health.

With warm regards,

Vijaysingh B Padode
Editor-In-Chief,
Dalal Street Investment Journal