Prem Shankar Jha

Behind Attempts to Corner Kejriwal for Renovation Costs Is Narendra Modi’s Desperation

By: Prem Jha
08-07-2023
Uncategorized

The prime minister is spending almost 11 times as much on meeting the same need as the Delhi chief minister. Is that because his job is 11 times as onerous as a chief minister’s? Or is it because Modi’s ego is considerably larger than Kejriwal’s?

Prime Minister Narendra Modi and Delhi chief minister Arvind Kejriwal. Photos: PTI

Narendra Modi must be in seventh heaven. His bete noire, potentially his nemesis, Arvind Kejriwal has been found to have feet of clay. For years now, Kejriwal has tirelessly contrasted his own simple lifestyle, and his party’s serving of people, with Modi’s endless preoccupation with himself, and  exclusive concern for the industrial health of the super rich, such as the Ambanis, the Adanis and the Tatas.

Ten days ago, Kejriwal had used the one weapon against Modi that a dictator has no defence against: satire and ridicule. Charlie Chaplin, the greatest comedian of the 20th century, had used this against  Adolf Hitler in his immortal 1939 film, The Great Dictator. Kejriwal had done this ten days ago with a 20 minute story he narrated in the Vidhan Sabha, titled “Chauthi Pass Raja”. This was having the same effect in India as The Great Dictator had had in the US: videos of the story have garnered millions of views. The release of data to show that the CM’s house his government is building costs Rs 45 crore was Modi’s counterattack! 

But will it succeed in denting Kejriwal’s hold on the people of Delhi? The commercial media’s gleeful  acceptance of the estimate as gross extravagance by a man whose ego has finally outstripped his unremarkable physical stature, was only to be expected in a country where investigative journalism has been strangled to death. But surely, some newspaper needed to contrast that story with the cost of Modi’s own pet project, the Central Vista Redevelopment project, which is Rs 13,450 crore, i.e $1.7 billion. 

This redevelopment is to spread over 20,866 square metres and have a total built up area of 64,500 square metres. Within it the prime minister’s house complex will cover 36,268 sq ft (more than 4,000 square metres) and cost Rs 467 crore.  This is more than ten times the amount estimated for the Delhi  chief minister’s proposed housing complex.

The prime minister’s new office and residence will be on a site covering 15 acres. It will contain ten four-storey buildings that will accommodate not only his residence, but the living quarters of his Special Protection Group and his private office complex. 

This is no different from the present arrangement in (the former) Race Course road where these functions are spread over 4 buildings set in lawns that cover approximately 16 acres. This arrangement  has comfortably served five previous prime ministers from Rajiv Gandhi to Manmohan Singh. 

Despite that, Modi’s reasons for the complex closer to Parliament House and the prime minister’s official secretariat are understandable, because of the rapidly increasing traffic on New Delhi roads, the worsening traffic jams being caused by it, and therefore the increasing vulnerability of any cavalcade to a terrorist attack. 

Construction for the Central Vista project. Photo: Oishika Neogi

What necessitated reconstruction of CM residence?

But these same considerations, multiplied many times, were what necessitated the reconstruction of the chief minister’s residence. For Kejriwal had categorically refused to move into Raj Nivas, the residence of the British chief administrators of Delhi, and later of chief ministers after Delhi became a state, pronouncing it too grand and too large for him and had, instead, chosen to stay at what used to be the Delhi Vidhan Sabha speaker’s residence at 6, Flagstaff road in old Delhi. 

All those who met Kejriwal at home in those days will remember that 6, Flagstaff Road is a single floor house with a small front lobby that Kejriwal had turned into an informal meeting room, a central living and dining room, and three bedrooms  spread around it, one of which was occupied by his father and a computer. That was all!

The entire house reeked of dilapidation. Considering that it had been built in 1942, barely a decade after the British shifted their capital from Calcutta to Delhi, this was hardly surprising. So, having lived in a similar house in New Delhi, in the 1950s and 1960s, I was not surprised to learn that the ceilings of all the three bedrooms had begun to leak. 

Those who are accusing Kejriwal of having been corrupted by power today, need to ask themselves why this surfaced only in 2020, seven years after AAP first came to power in Delhi? The short answer is that when he chose 6, Flagstaff Road over Raj Nivas, Kejriwal did not realise that the chief minister’s house needed to serve also as his main office.

This had been understood by the British as far back as in 1906, when they built the first office-cum-residence Raj Nivas on what was then the Ludlow Castle Road, and is now the Raj Nivas Marg.

After Independence, with an ever-expanding city and increasing state regulation of civic life, this complex became too small by 1988. Both wings of Raj Nivas where therefore completely redesigned and expanded into a residence-cum-secretariat at great expense in 1995. 

This background is necessary to understand why the conversion of 6, Flagstaff road from being simply one chief minister’s choice of a home, into the official residence of all future chief ministers of the state is costing Rs 45 crore. Kejriwal had chosen it as an unpretentious home to live in. But a chief minister’s home can never be private. On the contrary it has, necessarily to be a mini-secretariat that can receive information and transmit decisions instantly, as and when the chief minister needs it to do so.  

In 2015, when Kejriwal chose to live there, it was a home without an office. In the next five years this lacuna was filled by the ad hoc addition of temporary rooms constructed between the gate and the entrance to the house. These sufficed till 2020, when the COVID-19 lockdown was imposed. The shut down of the entire Delhi secretariat did not lead to shut down of work. On the contrary, with the need to open COVID wards, arrange medication, oxygen and ambulances, and  look after tens of thousands of migrant workers suddenly rendered destitute, 6, Flagstaff road suddenly became the pulsing nerve centre of government.  

I cannot even begin to imagine how his administration coped with the crisis from the ramshackle bunch of huts I had seen at Flagstaff road. But that experience, without a doubt, taught Kejriwal a hard lesson: he had to choose between looking and acting like a leader of the poor ever in search of votes, and a leader who wished to deliver service to the poor and save their lives. It is not therefore surprising that the first order for refurbishings worth Rs 7.09 crore, was issued on September 09, 2020. 

Once it was decided that 6, Flagstaff Road would be the permanent official residence of the chief minister of Delhi, another need arose that had been largely overlooked in Kejriwal’s first years. His was for quarters for his personal security staff. It was this need that had caused the present official prime minister’s residence to expand from 5, Race Course road as his home and 7, Race Course Road as his personal office, to include 3 and 9 Race Course Road as well. 

It is also the need explicitly stated for the PM’s residential complex Modi is setting up on the edge of the Central Vista lawns. Modi is therefore spending almost 11 times as much on meeting the same need as Kejriwal. Is that because the prime minster’s job is 11 times as onerous as a chief minister’s? Or is it because Modi’s ego is considerably larger than Kejriwal’s?

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COST OF LIVING OR COST OF FAILURE?

By: Prem Jha
08-09-2015
Indian Economics

Last month the RBI  governor Raghuram Rajan  defended his decision not to cut interest rates by saying “ It is not the RBI’s business to deliver booster shots to the stock market so that stock markets can soar for a short while, only to collapse when reality hits….What is important for us is sustained low inflation…the RBI will have no hesitation in delivering once we are assured of the low inflation”.  At the time when he said this wholesale price inflation was minus 4.1 percent; primary product inflation was minus 3.7 percent, fuel and power was minus  12.8 percent and manufactures minus  1.5 percent.   So what inflation measure was Rajan talking about?  The answer is the cost of living index.

But  chief economic adviser Arvind Subramanian pointed out in an article in the Indian Express as long ago as  June 12, that  this is the only index he should avoid  using, because its stickiness, and the widening gap between it and all other measures of inflation,  makes it suspect.   Subramanian had written  that pegging policy interest rates  to the cost of living made sense in “normal times”, but not in ‘unusual times’. ‘From the context it was clear that by normal times he meant those that had  existed till 2007, when the CPI., although much more volatile than the WPI, had traced the same long term path.

Times became ‘unusual’ after  2007.  Except for a few months  at the bottom of the global recession in 2010-11, the gap between CPI and WPI has widened steadily from 3 percent in 2010 to an  unprecedented 8 percent in August.  What is more this has happened inspite of the RBI using every monetary instrument to squeeze demand  and force prices down. The only conclusion one can draw  is that whatever is keeping the CPI inflation up, it is not an excess of demand.

If not demand then what is it measuring? There is only one remaining candidate: shortages of supply. The association of inflation with excess demand is so hard-wired into our thinking that it is often hard to remember that inflation can also be caused by  shortages in  supply. The idea of politically inspired, artificially engineered, shortages that last for long periods, is alien to economists’ thinking because it comes from the dangerous realm of political economy.  But once we open ourselves to this possibility it does not take long to see that it is, indeed, the reason why the behaviour of the CPI has changed so radically.

Foodgrain and cash crop prices ( hich account for more than 40 percent of the CPI) have become progressively less sensitive to  demand because   state governments  are setting minimum support prices for  more and more commodities. Today there are procurement , or minimum support, prices for more than 20 groups of food and cash crops, and the central and state governments have been raising these by  five  to seven  percent every year for more than a decade.

The rise in price of urban housing, which  accounts for 9.77 percent of the index,  is  almost entirely accounted for by the  growing shortage of urban land.  Tariffs on  transport, fuel and lighting, which   account for  another  17.1 percent, rose sharply  because of a  revival  of international oil prices till mid-2014,  a 40 percent fall in the value of the rupee after 2011;  a simultaneous removal of subsidies on diesel, gasoline and LPG, and a growing reliance on coal, imported  at four times the domestic price, for power generation.  All these are cost push factors that get  translated into an increase in the cost of living  through  administered changes in price.

Health and education make up another  9.04 percent. The cost of the former has risen because of drug price decontrol – another administered price change  — and because of a growing reliance on private health  services. The rise in the latter reflects the final collapse of the public schooling system.

In sum , whatever the  cost of living index may signify  in  countries where more than half of the population lives on pensions,   in  India it is an index not of excess demand but of the  failures of past governments. To use these  as a yardstick of inflation and curb industry  is to destroy India’s future and administer the kiss of death to its poor.

The right policy is not to leave   interest rates solely to politicians but link them to a measure that has been purged of all pressures caused by administered prices and  shortages of supply. The only one in India  that fully does this is   CRISIL’s Core  rate of Inflation Index (the CCII) .

The CCII is derived from the RBI’s Non-Food Manufactures Index (NFME) but excludes oil and metals because their prices are heavily influenced by global price trends. But it also  includes manufactured foods and beverages, which the NFME excludes. This measure of inflation has stayed close to the wholesale prices index, but is far more stable. In September 2014 when the fall in oil prices had just begun to bring down all indices of inflation, the RBI’s NFME fell to 2.8 percent and the wholesale price index to 2.38 percent, CCII index will not have fallen as much as the WPI but is almost certainly also showing deflation. Today, India desperately needs investment in infrastructure, and therefore the lowest possible long term interest rates. With the CCII at a long term rate of at most two percent thus there is not an iota of economic logic for keeping bank lending rates at 12 percent.

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Show me the money Times of India October 21 , 2014

By: Prem Jha
25-10-2014
Indian Economics

WITCH DOCTORS AT THE HELM
Prem Shankar Jha
Coming on the heels of July’s 0.5 percent, the 0.4 percent growth of industrial production in August shows that the Indian economy is not on the road to recovery. The reason is the sustained high interest rate regime of the past four years. Industry has been begging for cuts in the cost of borrowing since March 2011. When Modi came to power it thought that its troubles were about to end. But on August 5, RBI governor Raghuram Rajan surprised the country by announcing that he would not lower interest rates, because at 8 percent consumer price inflation was still too high. He also announced that he would not lower rates till inflation, measured by the cost of living, had come down to six percent. So his September 30 refusal to bring down interest rates came as no surprise.
But Rajan went a step further and unveiled an inflation forecasting model which estimated that under the very best of conditions CPI inflation would not fall to 6 percent till January 2016. To Indian industry, which ceased to grow three years ago, this was the kiss of death.
Today there is not a spark of demand anywhere in the entire economy. Inspite of every inducement the growth of credit in the festive season till the 3rd week of September was Rs 17,800 crores against 108,000 crores in the comparable period of last year. Two of the RBI’s own reports have shown that capacity utilization in industry has been falling since the early months of 2012. But Raghuram Rajan remains fixated only on bringing down inflation.
What is worse he is using only one of four measures of inflation—the consumer price index, and ignoring the other three. These are the wholesale price index (WPI), the Reserve Bank of India’s non-food manufacturing index, and the ‘core rate’ of inflation. The WPI is an approximate measure of the rise in production cost. It is therefore crucially important for manufacturers and builders. The RBI’s non-food manufacturing index is a rough measure of the pressure of excess demand on prices because it filters out the impact of weather and export policies on agriculture. But CRISIL’s core rate of inflation is the most precise measure as it includes manufactured food items but excludes globally traded fuels and metals to filter out the impact of world commodity price changes.
Today WPI inflation has fallen from 9.6 percent in 2010-11 to a record low of 2.38 percent. The RBI’s NFMI has also fallen from 8.4 percent in June 2009 to 2.8 percent, mainly on the back of declining world commodity prices. CRISIL’s core rate of inflation is therefore higher, but only by 0.2 percent.
So why has the Consumer price inflation rate remained so stubbornly high? The answer is that the new method of calculation introduced in January 2011 has, in an unforeseen way, become a measure of the effect on prices not of excess demand but of bottlenecks in supply and the failure of the State to provide the infrastructure for growth. .
Primary foods, whose prices are determined almost entirely by supply constraints such as rainfall, area sown, and in the case of vegetables , the amount exported, account for 42.2 percent of the index. Housing accounts for 9.77 percent, but the index includes only urban housing whose supply is severely constrained by the shortage of urban land and the severe curbs the government has imposed on loans to builders.
Health and education make up another 9.04 percent. The cost of both has risen because of drug price decontrol and a growing reliance on private doctors and schools that reflects the failure of the state The only manufactured products included in the CPI are clothing , bedding and footwear (4.6 percent) and manufactured foods ( 8.2 percent). If housing is taken as a proxy for basic industries the total weight of manufacturing in the index comes to just 21 percent. The rest of this index reflects constraints in supply that high interest rates cannot remedy.
This is why four years of ‘inflation targeting’ using the CPI as the yardstick, has failed to make any dent in the CPI inflation. Today people are expecting the RBI to lower rates , but only because CPI inflation has fallen to 6.38 percent and, with diesel prices falling, will go lower.. But the cause — a sharp fall in world commodity, and particularly oil, prices—has nothing to do with India. And we have no idea how long it fall will last. Should domestic interest rates go up again if ISIS captures Basra, or China goes on another investment spree?
The Government has belatedly realized that interest rates determine not only money supply but also economic growth. So it is setting up a joint finance ministry and RBI panel to decide what it should be. But even this is not a sufficient safeguard. The Congress learned to its cost that inflation indices misinterpreted, and interest rates misapplied, can not only sink the economy, but the government as well. If interest rates are to be indexed to inflation it must be to the core rate of inflation, and be subject to whether the government wants growth or price stability. That is a decision that only the cabinet and the prime minister are qualified to make.

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India’s Economic Nightmare Continues

By: Prem Jha
04-10-2014
Articles, Blog, Indian Economics

Four months ago Narendra Modi rode to power on a promise to revive the Indian economy and restore to the people of India the future they had lost. But tendrils of doubt had begun to surface well before he completed his first hundred days in office. In the last week these have hardened into certainty.

In normal circumstances four months would have been too soon start judging the performance of a new government. But the BJP came to power in a moment of crisis on a huge wave of anger against the UPA government. Economic growth had crashed, industrial production was contracting, and almost no new jobs had been created since 2008, leaving an estimated 40 million new job seekers stranded. None of those who voted for Modi had expected an instant miracle, but they had expected the new government to unveil a credible, well worked out plan to revive the economy.

They didn’t get one. There was no hint of any change in the macro-economic policies that the UPA had followed in Finance minister Jaitley’s budget speech and there was none in Mr. Modi’s Independence Day speech. Instead as the government’s 100th day approached it’s spokespersons plucked at straws to showcase its success – a 3.9 percent growth in Industry and, on its back, a one percent rise in GDP growth from 4.7 to 5.7 percent. July’s data for industrial production pricked this balloon. Not only had year-on-year industrial growth fallen to 0.5 percent and manufacturing contracted, but the 3.9 percent growth in the first quarter turned out to be a statistical illusion. To those on the ground for whom nothing had changed, this began to look like proof that nothing would change in the near future.

The policy change needed to restart growth is a simultaneous, very sharp lowering of interest rates and a firm containment of the fiscal deficit. The interest cut will revive consumer spending, especially on durables, start a rise in share prices, and bring down the cost of new investment. If synchronized with a reduction of the fiscal deficit it will bring about a non-inflationary transfer of resources from government consumption to corporate investment.

The time for making this shift of policy could not be more opportune. The balance of payments deficit has been brought down from an unsustainable 4.7 percent of GDP in 2012-13 to a healthy 0.8 percent in the last nine months of 2013-14. Exports are growing at 10.2 percent, and engineering goods exports at 22 percent. Foreign exchange reserves have crept up in the past 12 months from $ 279 billion to $ 320 billion. The threat that a sudden rise in investment and consumption will trigger a foreign exchange crisis has therefore receded. In his budget Mr. Jaitley made a determined bid to contain the fiscal deficit by increasing tax collections, and announcing plans to improve delivery and save money. But he made no mention of interest rates. His budget announcement therefore became a bird with a broken wing.
One has only to look as far as the Reserve Bank of India to see why. In his latest Policy Review the RBI governor, Raghuram Rajan, again did not lower interest rates, even by a fraction. Instead as one justification for keeping them high has dissolved, he has hurriedly replaced it with another. Today the wholesale price inflation is at a five year low of 3.7 percent, and consumer price inflation has fallen to 7.8 percent, but commercial bank lending rates (including bank charges) remain at 13 to 14 percent even for financially sound companies. This gives a real rate of interest for manufacturers of 10 percent — a figure unheard of in mature market economies even in good times and suicidal in times of recession. Even by the yardstick of CPI inflation the real rate is over five percent, a rate at which investment is not possible. Is it surprising then that bank lending has grown by less than ten percent this year against 23 percent five years ago; that there have been only six new share issues so far in 2014, against an average of 110 in the same nine months of 2006 and 2007, and that the sales of all consumer durables, from autos to TVs, computers and office equipment has fallen by eight to fourty percent in the last one year?

In his 14 months at the RBI, Rajan has not mentioned economic growth. This may be kosher in the West, which does not strictly need growth. It is not kosher in India, where people have to earn something before they can start worrying about how much their money will buy.

Prime Minister Modi has promised to give India world class roads and ports, high speed trains ‘smart’ cities, rural electrification and water supply. These are all infrastructure projects, and infrastructure devours capital. In the best planned and executed projects the ‘bare’ construction period, when the money has actually to be spent, stretches from five to 12 years. Where will Mr. Modi find Indian entrepreneurs willing to take up such projects when interest charges alone can add 25 to 100 percent to his costs?

The answer, of course, is nowhere. So Raghuram Rajan must give up his obsession with inflation, and his attempt to fight it single-handed by choking India’s economic growth, or he must leave. If the Modi government cannot persuade him, and has not the courage to fire him, then the people will fire it at the next elections.

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INDIA’S ECONOMY — WHO IS THE OWL AND WHO IS THE ASS ?

By: Prem Jha
11-02-2014
Articles, Blog, Politics India

After pushing up interest rates yet again by another quarter percent our flamboyant governor of the Reserve Bank, Raghuram Rajan said, “ we are vigilant owls , not hawks or doves”. Owls he pointed out were wise. The RBI, by which he meant himself, was doing what was necessary for the economy. This was to control inflation. When asked whether the hike would not further impair economic growth he said “ the juxtaposition of growth and inflation is not correct …. Higher levels of inflation cut into household budgets and constrict the purchasing power of individuals. This discourages investment and weakens growth. Therefore inflation has to be brought down first, in order to create the environment for growth”.
Rajan’s reasoning has so many flaws that one does not know where to start pointing these out. Inflation does constrict consumption as he claims, but only if the consumers’ money income remains unchanged. Rajan therefore starts by assuming that purchasing power in the economy will remain static. This means that he starts by assuming that there will be no growth in the economy. Since high interest rates reduce consumer spending on durables and Capital expenditure, they inevitably slow down growth. Raising interest rates to curb inflation therefore automatically ensures that consumers’ money incomes will remain unchanged. This turns Rajan’s policy into a self fulfilling prophecy.
The truth is that it is the RBI’s policy since March 2010 of ‘targeting inflation’ without regard for growth that has created the conditions that are ‘constricting the purchasing power of individuals’. That is why industrial growth has turned negative in the past seven months after having been nearly static during the previous two years.
The most Rajan should have claimed was that price stability creates a better environment for sustained industrial growth and that he was prepared to sacrifice short term but unsustainable growth for long term, sustainable growth. But to be valid, this argument needed to show that high interest rates were indeed curbing inflation. But data for the last seven, and not just four years show that raising interest rates has had absolutely zero effect on prices. In fact for the entire period inflation and interest rates have moved in the same direction! So all that Rajan is doing now is to put the gloss of academic jargon on a policy that has failed since January 2007 !
But just suppose , for the moment , that he might prove right this time – that conditions now exist in which high interest rates can indeed bring down consumer cost of living. Then why has Dr Manmohan Singh set up the 7th pay commission exactly one week after Rajan tightened the reins on credit? For another pay commission means another Rs 100,000 crores added to the centre’s non- development expenditure and another huge surge of purchasing power in the economy two years hence. Therefore, if Dr. Rajan’s reasoning is right, to another jump in consumer price inflation.
The havoc that former pay commissions have wreaked on the Indian economy has been documented over and over again. The fifth Pay commission increased the combined central and state government expenditures between 1997 and 2,000 by 80 percent to the then colossal sum of Rs.133,381 crores. This wrecked the finances of the state governments and brought all maintenance expenditure , on roads power transmission lines, dams and canals to a grinding halt. The World Bank called this the single most adverse shock to the Indian economy.
When the Left front, now a UPA partner, raised the demand for a sixth pay commission in 2004 Dr. Manmohan Singh set up a committee under the cabinet secretary to study it. The committee turned down the proposal stating that the Centre might not be able to bear the additional burden. The 12th finance commission went a step further and recommended that the government should stop appointing Pay commissions every ten years.
Inspite of this Manmohan Singh succumbed to the pressure of the Left ( and populists in his own party , and appointed the 6th Pay commission. This led to another sudden jump in the country’s consolidated fiscal deficit of one percent over the 1.5 percent caused by the fifth Pay commission.
This time, undaunted by the huge fiscal deficit and the faltering of revenue growth because of industrial stagnation, Dr. Singh has announced another Pay commission, and he has not waited even 10 years to do so!
It does not take a genius to figure out why. The Congress is in a panic: every opinion poll taken so far, not to mention its disastrous showing in the December state elections, shows that it is on its way out. The more optimistic predictions suggest that it will win around a hundred seats. The setting up of yet another Pay Commission only seven and a half years after the last one is its desperate bid to woo the votes of its 80 lakh central government and public sector employees. It has done so now because in about six weeks the election code will come into operation and the time for handing out candy to the voters at the taxpayers’ expense will run out.
This raises an important question: does the left hand of government know what the right is doing? Did Rajan know when he raised interest rates last week that the government was going to announce a measure that would shortly put another 1.5 percent of GDP worth of purchasing power into the hands of its central and state employees barely two years hence. And if he did know then how, last week, could he claim with a straight face that he was raising interest rates to control inflation?
Now that Rajan knows, and since he will still be around what will he do when the Pay commission releases another flood of money into the economy,? Will he ratchet up the interest rates again and again to control “inflationary expectations” ? And when that kills industry instead of merely putting it to sleep , while continuing to push consumer prices up and, will he raise interest rates to control inflation again , and again , and again? The plain truth is that while Rajan may consider himself to bean owl, Dr. Manmohan Singh has turned him into a jackass.

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About

Hi, my name is Prem Shankar Jha. I am a journalist and author based in New Delhi, India. In the last decade I have become more and more concerned about where the world is heading and I am curious to explore interactive formats with you in order to share views and concerns. Please do not hesitate to be in touch.

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