Narendra Modi and Indian Politics

Modi is probably the most successful Chief Ministers in the history of India and also the victim of a much derided projection of his personality by the media. There have been calls for him to step out of Gujarat and enter the National political arena - many see him as a potential Prime Minister who can get rid of the corruption and inefficiency that has got institutionalized in the country. Some believe the latest fast for harmony was one such image make-over attempt by him to become likeable across the spectrum. That brings me to the question, does he really need an image make-over. He has an image of an honest and strict task master who has, delivered more than a decade of uninterrupted growth, rein in corruption, made the bureaucracy efficient and accountable. On top of it, he has proven himself a politician par excellence by winning three successive and overwhelming mandates for governance in a state of 60 million people.

Modi however is not liked by the 'intellectual class' because he does not represent the typical appeasement oriented politics we have got so used to in India. If a Hindu gets robbed, it just an act of crime; if however a Muslim or a Dalit is robbed, it is an act of hatred perpetrated by a jealous majority on the susceptible minority. That's how our politicians and media see things and sadly, in a country of indifferent middle class, it is an easy task to accomplish. Our politicians, led by the Congress Party, have for years propagated appeasement policies under the veil of secularism which has deepened the divisions along religious and caste lines since independence. Is it any surprise reservation quotas have gone up more than twice and new castes/classes/tribes keep adding up for a share of that pie. Very soon, we would have reservations along religious lines as well. The reservation system was proposed to last for 10 years at the time of its inception but Congress Party and the Nehru-Gandhi family took their clue from the British to divide and rule and kept extending the quotas and timeline to keep the fractions and divisions intact. BJP emerged as a party that did not believe in appeasement policies but in a uniform civil code but has since lost way.

Modi is their last hope and to my mind he does make the cut to lead India. There is however the issue of 2002 Gujarat Riots that continues to haunt him.

Gujarat, despite being home to the Mahatma, has always been a highly divided state plagued by communal violence. If we let the facts speak, then the reality is that 2002 riots were brought to an end and situation returned to normalcy in a lot less time than previous instances. The 1969 riots in Ahmedabad continued much longer and claimed many more lives - the city remained under curfew for nearly two months. Communal disturbances in many parts of the state in 1985 continued for more than five months, with Godhra reeling under curfew for almost a year.

Also, what is never reported in the media and is often shrugged aside by the pseudo-secular in our country is that Gujarat police killed more than 200 rioters(mostly Hindus), arrested more than 18,000 Hindus compared to 3,800 Muslims and fired more than 10,000 rounds of bullets to control the situation. This doesn't mean there were no lapses, there definitely were. But I would also refrain from saying those lapses were deliberate and state promoted. It is not easy for the police or army to fire on their own people. For some, their personal bias must have gotten better of their responsibility as the guardian of law and order - the Hindu rioters were, in the mind of many, venting out years of anger against appeasement and burning of pilgrims at Godhra. We also cannot loose sight of the fact that since 2002, there has not been a single act of communal violence in the State of Gujarat and economic development has led to upliftment of people across all religions and societies.

These facts and arguments do not make the 2002 riots any less abhorrent but only provide a context in which to analyze the reaction of the Gujarat Government and Narendra Modi. What happened was extremely unfortunate and must never happen again. In a country like ours with a diverse population and strong religious beliefs, communal tensions are bound to arise when a large section of population is poor, uneducated and without hope. Such a section is easy to manipulate into voting for appeasement and entitlement based policies and is also the most vulnerable to the preaching of extremist religious views. The only way to make them less vulnerable and feel a part of a great nation is to provide them with quality education and economic development so that they can look to the future with hope and optimism. We today need a leader who has the courage to take all the criticism for being in favor of a uniform civil code in his stride and work to create a civil society where everyone has an equal opportunity to succeed. A leader who can look beyond appeasement and promote secularism in the real sense. A man of character who can make bureaucracy and judiciary efficient and accountable to gradually root out corruption. When I look around, I only see one man who can do it - that's Narendra Modi. Even if one was to hold him accountable for the 2002 riots, we ought to give him a chance. Afterall, we have voted Congress into power many times despite the much Cherished Nehru-Gandhi family being the perpetrator of Sikh Riots and hundreds of thousands of forced vasectomies.

A Common Sense approach to tackling the current Economic Crisis

In what is rightly characterized as the worse economic situation since the Great Depression, I have been wondering why despite all the advancement in economic theory and research and easy availability of data, we have not yet found the solution. We have had the monetary authorities using both conventional and unconventional methods and governments using fiscal stimulus in the form of tax breaks, spending and subsidies but growth continues to elude. I do not claim to be an economist or having any deep understanding of the economic theory but based on a lot of thinking, I have been drawn into believing that this is a classic case of too much intelligence taking over common sense.

The current economic crisis began with a housing crash that continues to weigh down on the economy. US households hold most of their tangible net worth in the form of home equity and with falling home prices, their net worth continues to fall. There are millions of homeowners who have negative equity on their homes and combined with declining real term wages and unprecedented high levels of unemployment, it is no surprise that delinquency rates continue to be high - 9% of mortgage borrowers are behind their payments and 4.6% of homes are in foreclosure. Falling net worth, increasing negative equity, foreclosures and people falling behind their mortgages dents consumer confidence across the spectrum and creates a vicious cycle. People who have money wait for the prices to fall further, banks weighed down by foreclosures and fears of ever increasing provisions put breaks on lending, and those falling behind payments have to cut down spending to make up or give up their homes and move into rental housing which further erodes their confidence. Foreclosures further increase the supply of unsold houses in the marker and fire sales further depress home prices. For any economic recovery to take place, this vicious cycle needs to be broken.

US households' mortgage debt averaged 10.3 trillion during the first quarter of 2011. While there is a general trend towards de-leveraging, the speed of de-leveraging has been far slower than the pace of leverage build-up during the bubble years due to tough economic conditions. Borrowers took on 1 trillion in new principal and 90 billion in extra interest in 2006 alone while mortgage debt has reduced by only 0.7 trillion in last 3 years from the 2008 peak. American consumers have finally learned that existing level of debt is unsustainable and they need to de-leverage. Tough economic conditions however have made that process painfully slow. Therefore a reduction in mortgage debt, adjustment in tenor and refinancing at lower rates can work wonders for both the American consumers and the Banks.

American government has announced total fiscal stimulus of aprx 1100 billion. Last stimulus of 700 billion created or saved 400,000 jobs and was therefore extremely expensive and the recently announced 400 billion stimulus is going to do nothing spectacular as well. Imagine if that 1100 billion was directed towards giving a one time debt waiver to homeowners chronically behind on their commitments and deep into negative equity. Even if one was to invoke the fairness principle and say the waiver need to be given to all, we are talking about roughly 10% of the mortgage debt disappearing from the system leading to interest savings of aprx 60 billion going straight into consumers pockets and an instant reduction in foreclosures and delinquent mortgages. Average cost of existing mortgages currently is 5.96% while a new 30 year mortgage can be negotiated at around 4.5%. If the government was to work with the banks to refinance all or bulk of the mortgages at the reduced rates, we are talking about a further 50-60 billion savings directly into the pockets of consumers and a further reduction in foreclosures.

More than the direct effects, such a process has enormous indirect benefits - people able to stay in their homes and interest savings translating into confidence build up and banks saving foreclosure costs and reduction in provisions for bad loans. Declining foreclosures would lead to stability in home prices as well.

It looks like a good and simple solution to me to tackle the main problem. There is however one problem with this, that of Moral Hazard. Waives are like entitlements - once you put them out, people start taking them for granted. This moral hazard has the potential of making the irresponsible American consumer more irresponsible. I don't think this problem can be tackled with certainty but it surely can be eliminated by effective regulation of the mortgage market from a prospective basis. Simple rules like a maximum 75% loan to value ratio, no complicated ballooning structures, prudent rating of mortgage securities and higher allocation of capital for high LTV mortgages can ensure we don't see the same levels of irresponsible lending. If the government can ensure effective regulation, then I would reckon this is a risk worth taking given that nothing else seem to be working.