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      in World Politics

      Why Is Foreign Investment Flooding Into India?

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      For years, India suffered from what came to be called the “Hindu rate of growth” — a result of Jawaharlal Nehru’s policy choices. India’s first prime minister had a fascination for the Soviet Union and championed socialism. In India, this socialist economic model was incongruously implemented by a colonial bureaucracy with a penchant for red tape.

      Consequently, the license, quota and permit raj, a system in which bureaucrats commanded and controlled the Indian economy through byzantine regulations, throttled growth for decades. Once the Soviet model started collapsing in 1989, the Indian economy came under increasing pressure. A balance-of-payments crisis led to the 1991 economic reforms. Thereafter, India consistently grew at a rate of more than 5% per year until 2019.

      What Ails Corporate Governance in India?

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      During the COVID-19 pandemic, that growth has stalled. In the first quarter of India’s financial year that begins on April 1, the economy shrunk by a record 24%. Forecasts estimate that it will shrink further, although the rate of the contraction will decelerate considerably over the next two quarters. This contraction has left little elbow room for a government fixated on redistributive policies and fiscal restraint. This fixation is a hangover from the past.

      Historically, the Bharatiya Janata Party (BJP) has been more market-friendly than other political parties. In fact, the BJP broke new ground in the early 2000s by targeting and achieving a growth rate in excess of 8% when Atal Bihari Vajpayee was prime minister. Despite such high growth, the BJP lost the 2004 election. 

      Foreign Investment Hits Record Figures

      The BJP has not forgotten Vajpayee’s defeat. In particular, Prime Minister Narendra Modi has drawn a key lesson and focused on providing services to the masses. As a result, the government has focused on redistribution and taxation. It has put growth on a backburner. In 2018, the Modi government embarked upon what these authors termed Sanatan socialism, a policy that courts the poor with financial transfers and private provision of services. This strategy was vindicated by a resounding electoral victory in 2019.

      Today, COVID-19 is posing fresh challenges to the economy and to the Sanatan socialism policy. The growth slowdown in India is greater than in other emerging economies. The opposition has upped the ante and is blaming the government. Some business leaders are questioning the government’s lockdown strategy. This puts the BJP on the defensive regarding the economy.

      Yet even during such a growth shock, foreign direct investment (FDI) and foreign portfolio investment (FPI) have been pouring into India. Surprisingly, the FDI has hit record figures. In the first five months of this financial year, $35.7 billion has come into India. The FPI figures are also at an all-time high. In November, foreign investors plowed $6 billion into Indian capital markets, beating figures for Taiwan and South Korea. What is going on?

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      Three key facts explain this inflow. First, corporations from the US and the Gulf have bought big stakes in Reliance Industries, India’s biggest conglomerate. They are also buying shares in Indian companies. In effect, they are betting on future growth.

      Second, the Performance Linked Incentive (PLI) scheme has gained some traction. The purpose of the PLI is to boost electronic manufacturing in the country. So far, India has been too dependent on China. Current tensions along the border have led India to change tack and give financial incentives to companies who manufacture in-house. Players like Samsung, Pegatron, Foxconn, Wistron and AT&S have responded well to the PLI.

      Third, global corporations might be diversifying their supply chains to mitigate the risk of manufacturing exclusively or mainly in China. This strategy to tap alternative supply chains to China is widely known as China Plus One, and India might be benefiting from it.

      Modi has doubled down on an advantageous situation. Sovereign wealth funds, pension funds and organizations with over $6 trillion of assets under management attended a summit organized by the prime minister in the first week of November. In addition to Modi, India’s business leaders such as Mukesh Ambani of Reliance Industries Limited, Ratan Tata of the Tata Group and Deepak Parekh of Housing Development Finance Corporation pitched to these investors. More foreign investment might follow soon.

      What Lies Ahead?

      If investment is flowing in, what are its implications for the Indian economy? First, India will experience a growth spurt within three to four quarters from now. In recent years, private investment has been weak because of a banking crisis. Indian banks lent large sums to big borrowers who had no intention or ability to pay back their debts. This meant that they had no money or appetite to lend to bona fide businesses. A credit crunch ensued, investment suffered and so did growth. Increased FDI will reverse this trend and fuel growth by restoring investment.

      Second, India will experience job growth thanks to higher FDI. The entrance of new players and the revitalization of older ones will increase employment. The government has already instituted major labor market reforms to encourage manufacturing and other labor-intensive activities. 

      Third, increased employment could boost domestic demand, raising growth rates. These might materialize by the 2022-23 financial year, just in time for the next general election. The FDI flowing in right now might be boosting the BJP’s 2024 reelection chances.

      Finally, the record FDI is giving the Modi administration a leeway to achieve geopolitical goals. With cash coming in from friendly economies, the government is limiting economic engagement with nations hostile to India, especially in core sectors such as power, telecommunications and roads. Aimed largely at Chinese and probably Turkish entities, the move could benefit European, American and East Asian companies from Japan, South Korea and Taiwan.

      India’s new economic direction reflects the seismic shift in the global economy. The post-1991 era is over. As during the Cold War, countries are now mixing politics and business again.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 113 Shares169 Views

      in US Politics

      Giuliani and Trump reported to have discussed 'pre-emptive pardon'

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      [embedded content]
      Donald Trump and Rudy Giulani discussed as recently as last week the possibility of a “pre-emptive pardon”, the New York Times reported.
      A spokeswoman for the president’s personal attorney, Christianne Allen, told the Times: “Mayor Giuliani cannot comment on any discussions that he has with his client.”
      Shortly after the Times published its story, however, Giuliani tweeted a denial.
      “Fake News NYT lies again,” he wrote. “Never had the discussion they falsely attribute to an anonymous source. Hard to keep up with all their lies.”
      The Times cited two anonymous sources.
      Presidential pardons are a common feature of the waning days of any White House term. Trump has not conceded defeat by Joe Biden but he will leave office on 20 January regardless.
      Last week, the president pardoned his first national security adviser, Michael Flynn, who pleaded guilty to lying to the FBI about contacts with a Russian official.
      Trump had already pardoned political allies including Bernard Kerik and Joe Arpaio and commuted a sentence handed to longtime ally Roger Stone. Former Trump aides Paul Manafort, George Papadopoulos and Rick Gates are all thought to be possible pardon recipients.
      Gates, a former deputy campaign chair who also worked on Trump’s inauguration, pleaded guilty to financial fraud and lying to investigators and was sentenced to 45 days’ confinement.
      Last week, he told the Times Trump “knows how much those of us who worked for him have suffered, and I hope he takes that into consideration if and when he grants any pardons”.
      Giuliani, a former mayor of New York, has not been convicted of any federal crime. But he has been reported to be under investigation by federal prosecutors, regarding his dealings in Ukraine and possible violations of lobbying law.
      Giuliani’s own lawyer, Robert Costello, told the Times: “He’s not concerned about this investigation, because he didn’t do anything wrong and that’s been our position from day one.”
      Presidential pardons pre-empting charges or conviction are extremely rare but not unknown. Jimmy Carter, for example, pardoned thousands of men who illegally avoided the draft for the Vietnam war.
      Richard Nixon’s pardon from Gerald Ford after resigning over the Watergate scandal covered all his actions as president.
      On Monday, conservative commentator Sean Hannity said on his radio show that Trump “needs to pardon his whole family and himself”.
      Most observers think a self-pardon would be both unconstitutional and not likely to work. If Trump did try it, it would have no effect on prosecutors in New York state investigating his tax affairs and possible violations of campaign finance law.
      According to the Department of Justice, presidential pardons do not signify that the recipient is innocent.
      The White House did not comment on the Times report. More

    • 200 Shares139 Views

      in US Politics

      Operation Rebrand Melania: What can we expect from the first lady’s rumoured memoir? | Arwa Mahdawi

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      Melania Trump is a woman of few words: she Be Best at brevity. Now that the first lady is getting ready to vacate the White House, however, it looks as if she may have found her voice. Rumour has it that Melania is planning to write a memoir about her time in public office. “She’s not done, or going as quietly as you might expect,” a mysterious source recently told the New York Post.Well, of course she isn’t. Melania may not have the gift of the gab, but she is good at grabbing any opportunity for self-advancement that comes her way. When Donald Trump took office, a lot of liberals seemed to want to see Melania as a victim. #FreeMelania memes circulated; theories that she had done a runner and been replaced by a body double abounded. But Melania, it has become painfully clear, is no shrinking violet. She is no victim. She is every bit as conniving as her husband, not to mention petty: if Melania’s former friend, Stephanie Winston Wolkoff, is to be believed, the first lady spent a large part of the past four years devising devious ways to undermine Ivanka. During the inauguration, for example, Melania reportedly launched “Operation Block Ivanka” and arranged the seating to ensure that you could not see the first daughter on television during the president’s swearing in. Princess Ivanka was blocked by Queen Melania’s head.Extreme pettiness is not a good trait in a human being. However, it can make for excellent content in a memoir. I have high hopes that Melania will fully embrace her dark side after leaving the White House and take down the Trump family in a scandalous tell-all. If she does not dish the family dirt, her memoir risks being extremely anaemic: her time as first lady has not exactly been action-packed, after all. Chapter one: It was Be Best of times and Be Worst of times; I launched an anti-bullying initiative despite being married to the world’s biggest bully. Chapter two: Stormy Daniels compared my husband’s genitals to “the mushroom character in Mario Kart”. Chapter three: I went on a Kenyan safari in a weird colonial hat. Chapter four: I ranted about migrant children and Christmas. Chapter five: I dug up the Rose Garden. Chapter six: I contracted coronavirus.As Melania prepares for the next chapter of her life, it seems that she has already started throwing her nearest and dearest to the wolves in an attempt to clean up her image. On Monday, the New York Post published a fawning piece about the first lady, declaring that she had been done a severe disservice by Stephanie Grisham, her chief of staff and press secretary. One imagines the insiders quoted in the piece are pals of the first lady who have been instructed to launch Operation Rebrand Melania.There has been a lot of mirth about the idea of Melania writing a memoir, but I have a horrible feeling that she is the one who will be having the last laugh. She may not produce anything like Michelle Obama’s memoir Becoming, but she will make a quick buck and become even richer. Her husband may need to be dragged out of the West Wing kicking and screaming, but Melania is going to strut out smirking and scheming. More

    • 150 Shares199 Views

      in Elections

      Trump lawyer: ex-election security chief Krebs should be 'taken out and shot'

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      Joe DiGenova condemned for ‘mob attorney’ remark made on podcast shown on conservative Newsmax TVUS politics – live coverageA former head of US election security who said Donald Trump’s defeat by Joe Biden was not subject to voter fraud should be “taken out at dawn and shot”, a Trump campaign lawyer said. Related: Trump’s fraud claims undermine democracy, ex-US election security chief says Continue reading… More

    • 50 Shares169 Views

      in World Politics

      Joe Biden’s Revolving-Door Cabinet

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      After a weird hiatus in modern history lasting four years — more like the “Twilight Zone” than “West Wing” — the US under Joe Biden will presumably return to its stable center, which is proudly claimed to be “center-right.” The Biden camp thinks that defining the nation as center-right is an objective, lucid, realistic evaluation of the mood of the population. They base it on their interpretation of the results of the 2020 election that sent Joe Biden to the White House, reduced the representation of Democrats in the House and left Republicans in control of the Senate.

      The true Democrats — a group that excludes a small minority of fanatical progressives — consider themselves the center but also claim to be progressive. The true Republicans — moderates like John Kasich and Meg Whitman, who endorsed Biden — are just right of center. And they claim that the millions of Trump voters define the right. This means that to accomplish the goal of unifying the country and offering something to everyone across the spectrum, President-elect Joe Biden’s policy should logically be situated somewhere to the right of the moderate Republicans.

      The Low Expectations of Biden’s High-Mindedness

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      Though the media seems uninterested, it can easily be demonstrated that this official reading of the “mood” of the US is based on totally erroneous assumptions. The US population is clearly tired of a foreign policy based on endless overseas wars, even traumatized by it. A clear majority of Americans, irrespective of party allegiance, favor the principle themes proposed by the progressive left of the Democratic Party: Medicare for All, a wealth tax, an end to bailouts for the rich, a $15 minimum wage, free college education, the decriminalization of marijuana, to mention only those. The Democratic center that Biden represents has branded most of those positions extreme. And the Republicans will systematically oppose them.

      If a majority of the people clamor for progressive policies but the officials they elect oppose them, shouldn’t the leaders recognize a state of cognitive dissidence rather than assume that their own values represent the truth? When citing the “mood of the nation,” whose mood are they talking about, the people’s or the that of Washington insiders? Whose mood will guide the new administration’s policies?

      If the choices Biden has been making for his cabinet are any indication, the only mood worth taking seriously is that of Beltway insiders. An article in The New York Times by Eric Lipton and Kenneth P. Vogel, “Biden Aides’ Ties to Consulting and Investment Firms Pose Ethics Test,” looks at the recent activity of Biden’s cabinet choices reveals how the system is built. All of the identified candidates for significant posts are linked to the kinds of corporate interests that oppose the positions the US public supports.

      Worse, the authors analyze the structural corruption of the DC system of revolving doors. They focus on two companies: the consulting firm WestExec Advisors and an investment fund, Pine Island Capital Partners. The two firms feature “an overlapping roster of politically connected officials,” that include “the most prominent names on President-elect Joseph R. Biden Jr.’s team and others under consideration for high-ranking posts.” WestExec was founded by the future secretary of state, Tony Blinken, and a top candidate for secretary of defense, Michèle Flournoy.

      The authors bring up the fact that Biden’s nominees have refused to release a list of their firm’s clients. This would be the key to following up any suspicion of corruption. WestExec generously offered this explanation of their refusal: “As a general matter, many of our clients require us to sign nondisclosure agreements, which are a standard business practice to protect confidential information. We are legally and ethically bound by those agreements.”

      Today’s Daily Devil’s Dictionary definition:

      Legally and ethically bound:

      Required by a supreme law, doubly enforced (by a moral code among people of honor and commercial law) to place one’s loyalty to corporate masters ahead of public service.

      Contextual Note

      Welcome to the iron-clad logic of what may be called the rulebook of the elite. Slaves in the old South and elsewhere were physically bound to prevent their escape. Slaves to an all-powerful corrupt system are voluntarily bound by shackles of self-interested solidarity. The average person assumes that the wealthy and powerful have absolute freedom. They too are slaves.

      Some may wonder if any difference exists between the idea of being “ethically bound” by devious commercial agreements and the Mafia’s law of omertà. Both function as a law of silence designed to hide shameful activities. The difference is that the Mafia never claims their business is either ethical or legal. Saagar Enjeti addressed The Times article on his program for The Hill, describing how the influence-peddling system Blinken and Flournoy created works, how the consulting company and the hedge fund work together to disguise their corruption. He added that “the best part is it’s totally legal. It’s also corruption 101 … a more sophisticated way of handing somebody a briefcase full of cash.”

      Embed from Getty Images

      Lipton and Vogel describe the system in these terms: “WestExec’s business plan accommodates the revolving door between the influence industry and government by offering services that draw on government expertise without triggering lobbying laws that would require its officials to disclose their clients’ identities or specific issues before the government.”

      Democrats will undoubtedly point out that none of this compares with the obscenity of Donald Trump’s flagrant violation of the emoluments clause of the Constitution from day one of his presidency, to say nothing of the aggravated nepotism of his administration over the past four years. But the Democrats’ precious revolving door has been there for decades. Trump’s outrageous performance offered a singular advantage to any Democrat or Republican succeeding him. If they return to the more traditional, discrete methods of corruption, no one will blink an eye. Biden has been around DC lobbyists and their ilk long enough to understand the rules of that game.

      Historical Note

      The Times article is astonishing if only because it breaks with the newspaper’s perceived editorial stance of systematically developing Democratic talking points and avoiding any criticism of the party’s establishment. This time, the authors pull no punches as they describe what can only be called a flagrant sell-out to the corporate plutocracy by a president who didn’t even wait to assume his functions before putting the graft machine to work.

      Democrats will protest that, to quote Marc Antony on Brutus and his fellow assassins, “these are all honorable men” (even if today many of them are women). Lipton and Vogel mention the fact that the DC lobbyists they have spoken to “say WestExec has already come to be seen as a go-to firm for insight on how Mr. Biden’s team will approach issues of significance to deep-pocketed corporate interests.” Given the direct connections his appointees have with major defense contractors, the military-industrial complex will find itself in a more comfortable position than under Trump.

      The article nevertheless carefully avoids adventuring into the real and most troubling consequences of this revolving door. Biden’s group of political professionals has a shared professional and financial interest in keeping the massive arms industry ticking over. That doesn’t mean that war is imminent. It means that the risk of war and the threat of military intervention will continue to be a dominant tool not just of diplomacy, but also of the management of the economy.

      Trump had his own personal way of being what he claimed he would be during his first presidential campaign: “the most militaristic” president ever. Nevertheless, he thought military action abroad was a waste of money and sought to bring home the troops, but he also insisted that military build-up was vital. He relentlessly and needlessly bloated the defense budget. In comparison, Democratic presidents, at least since Lyndon Johnson, have tended to support both the build-up and the intervention.

      Biden’s future cabinet certainly appears to conform to that model. This cabinet will undoubtedly find itself “ethically and legally bound” to reinforce the US military presence across the globe. That’s what Democrats have been doing for decades. And that’s what the masters of the revolving door have been trained to do.

      *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Read more of The Daily Devil’s Dictionary on Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 75 Shares189 Views

      in World Politics

      What Ails Corporate Governance in India?

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      Most businesses perish not because of strong competition or adverse macroeconomic conditions but because of cracks within. One such failing is weak corporate governance. For publicly listed companies, this often translates to controlling shareholders or “promoters” pursuing policies and practices in their own interests at the expense of minority shareholders. It turns out that companies with such promoters are at greater risk of crises and near-death moments in bad economic cycles. Those companies with better governance, where promoters act responsibly in the interests of shareholders, tend to do better during adversity. In fact, savvy investors now treat good corporate governance as an intangible asset.

      This can be best seen in India’s banking sector. In general, private sector banks have practiced better governance than state-owned ones. Consequently, their financial and operating metrics also tell a story of profitable growth with less asset quality issues than their public sector peers. No wonder that private sector banks trade at a higher valuation than public sector ones.

      360˚ Context: The State of the Indian Republic

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      Higher valuation puts these banks into a virtuous growth cycle. They are able to raise capital cheaply with less dilution. This reinforces their already high return ratios, which in turn continue to support a higher valuation. This self-perpetuating cycle has led to long-term compounding of shareholder returns. State-owned peers have fared much worse.

      Despite a large number of state-owned banks, the majority of credit growth in India is led by private sector banks. In fact, state-owned banks are struggling and the government is forced to merge them to ensure their survival. The success of well-run private banks demonstrates how good governance can lower a company’s cost of capital. That is not all. The resulting higher valuation also gives such companies immense pricing power in corporate transactions and talent management, widening their economic moat. 

      Multiple Issues

      India boasts of the oldest stock exchange in Asia, which is also the region’s largest. However, corporate governance in India still lags behind many other places like Singapore or Taiwan. India must understand that good corporate governance is the foundation of a lasting business. It builds investor confidence and has other benefits. India is short of capital and needs to earn investors’ trust. Without an infusion of capital, the Indian economy will fail to thrive. 

      Embed from Getty Images

      There are multiple issues that plague corporate governance in India. First is the lack of accountability among controlling shareholders. For example, promoters get away with appointing their friends, ex-employees and business-school classmates as independent directors with no one raising an eyebrow. Often, statutory auditors are given only one-year extensions to pressurize them to “comply” with management demands. Compliant auditors tend to persist for too long, developing far-too-cozy relationships with the very people they are supposed to keep an eye on. With no strong checks and balances, promoters are in effect incentivized to take advantage of minority shareholders. 

      Second is the slow and selective enforcement by the Securities and Exchange Board of India (SEBI), the country’s market regulator. Cases against the management’s missteps take years to resolve. SEBI generally hands out warnings or mild punishments. This could be because SEBI does not have enough resources to deal with a large number of cases, or it could be a lack of authority or competence. In certain cases, promoters are extremely powerful and politically connected. Given that regulators are political appointees, it is far from easy for them to ignore pressure from politicians, remain impartial, punish the powerful and deliver justice.

      Third is the fact that markets do not punish poorly managed companies for their misdeeds. India needs deeper markets with broader participation for true price discovery. Stock markets must be treated as marketplaces, not as forums for votes of confidence on the government’s economic policies. Because governments place too much importance on market performance, they have an incentive to keep them inflated. Indian corporate bond markets are even worse than stock markets in terms of participation. They are really accessible to only a handful of companies. 

      Fourth is the lack of transparency and weak disclosure requirements. This further perpetuates weak governance. The most detailed yearly disclosures by Indian companies are annual reports, which are often colorful marketing decks instead of detailed, factful and insightful documents, like the 10-Ks in the US. The quarterly earnings report for many companies is just a one-pager. This discloses summary items only without any breakdown of details.

      Earlier, manufacturing companies were mandated to disclose operational details pertaining to capacity, production and inventory. A few years ago, this disclosure requirement was done away with. Now, the only time companies make adequate disclosures only during their initial public offerings, which is a mere one-time event instead of an annual exercise.

      Bringing Sense to the Madness

      The only way to bring some sense to the madness in India’s public markets is to give more independence, power and resources to SEBI. At the same time, India must seriously penalize auditors and boards of companies for overlooking management follies. In addition, the authorities must incentivize and protect whistleblowers in a similar manner to developed economies.

      Some argue that complying with higher disclosure requirements might be too costly for smaller companies. That is not true. Furthermore, even the top 100 Indian companies default frequently on mandatory disclosures. Instead of reducing requirements for disclosures, India should lower costs of disclosures and compliance by using more technology.

      Another way to improve the health of India’s public markets is to increase market participation and trading volumes. Then good corporate governance would be rewarded while poor corporate governance would be penalized. Making short-selling a smoother affair might make the market deeper and more liquid. To increase depth in corporate bond markets, India must make lasting banking reforms. This involves privatization and granting more powers to the banking regulator.

      An unintended consequence of banking reform might be the improvement of India’s infrastructure. Currently, many state-owned enterprises in infrastructure sectors such as power are mismanaged because their bosses are able to buy time by restructuring their bank loans. Banking reforms will make that impossible and will transform this sector too.

      A combination of disclosure, regulation and enforcement can improve corporate governance. Reforms can also reduce conflicts of interests as well as create the right incentives and disincentives for Indian companies. These would inevitably lead to some short-term backlash, but the substantial long-term benefits are too significant to be ignored.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More