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Volume XXII Number 208


A steady recovery
Manufacturing, investments help buoy economic growth

he provisional estimates of annual national income for 2017-18,
released yesterday by the Central Statistics Office, confirm the wide- ing will fall from 3.3 per cent to 2.8 per cent. These
ly held belief that the Indian economy is on a slow but steady path of deficit-shrinking changes are unlikely to happen,
recovery after the twin shocks of demonetisation in November 2016 causing the 2028 deficit to be 7.1 per cent of GDP –
and the launch of the goods and services tax (GST) eight months later. Gross val- two percentage points higher than the official pro-
ue added (GVA) at basic prices grew by 6.5 per cent in 2017-18, slightly higher than
If a deficit amounting to 7.1 per cent of GDP were
what the second advance estimates had put out earlier in February. This still allowed to occur in 2028, and to continue thereafter,
makes the 2017-18 figure the lowest in all the four years of the Narendra Modi gov- the debt-to-GDP ratio would reach more than 150 per
ernment. But the trajectory of growth captured in the quarterly GVA numbers cent, putting the US debt burden in the same league
unmistakably establishes a clear recovery trend. To be sure, the upward revision as that of Italy, Greece, and Portugal. In that case, US
of the 2017-18 figure was largely due to the fourth-quarter numbers , which esti- bonds would no longer look like a safe asset, and
mated GVA growth in the January-March period at 7.6 per cent, the highest lev- investors would demand a risk premium. The inter-
el reached in the last seven quarters. est rate on government debt would, therefore, rise
substantially, further increasing the annual deficits.
Four sectors contributed to the uptick in the fourth-quarter numbers for 2017-
Because financial markets look ahead, they are

US’ exploding
18. Agriculture came out with an impressive figure of 4.5 per cent, overcoming already raising the real (inflation-adjusted) interest
the high-base disadvantage of the last quarter of the previous year. What boost- rate on long-term US bonds. The real rate on the 10-
ed the agriculture number was the use of the third advance estimates of crop pro- year US Treasury bond (based on the Treasury’s
duction released by the ministry of agriculture, which were higher than those inflation-protected bonds) has gone from zero in
put out in the second advance estimates. Manufacturing at 9.1 per cent was the 2016 to 0.4 per cent a year ago to 0.8 per cent now.
With annual inflation running at about 2 per cent,

budget deficit
highest in the last seven quarters. Helped as it was by higher corporate earnings,
its performance is indicative of how the effect of demonetisation has worn off the increase in the real interest rate has pushed the
nominal yield on 10-year bonds to 3 per cent.
and the pain of transition to the GST regime has been absorbed by businesses.
Looking ahead, the combination of the rising debt
Another sector that bounced back in the fourth quarter was construction, which ratio, higher short-term interest rates, and further
at 11.5 per cent, reflected the positive outcome of the pick-up in the government’s increases in inflation will push the nominal yield on
road-building programme. 10-year bonds above 4 per cent.
The biggest contribution to the improved numbers in the fourth quarter came
from public administration, which broadly corresponds to government spend-
Slowing the growth of Social Security and Medicare must What can be done to reduce the federal govern-
ment’s deficits and stem the growth of the debt ratio?
ing. Over a 16.4 per cent growth rate in the last quarter of 2016-17, public admin- be part of the solution It is clear from the forces that are widening the deficit
istration again clocked a 13.3 per cent rise in January-March of 2017-18. The sec- that slowing the growth of Social Security and

he United States has an enormous and rapidly So the cause of the exploding debt lies elsewhere. Medicare must be part of the solution. Their com-
tors that disappointed include mining and trade. Both of them showed little
widening budget deficit. Under existing law, The primary drivers of the deficit increase over bined projected addition of 2.7 per cent of GDP to the
improvement. This is no surprise. The absence of a sustainable regulatory the federal government the next decade are the higher annual deficit over the next decade is more than
framework for the mining sector has seriously undermined it, just as exports con- must borrow $800 billion this cost of benefits for middle-class twice the officially projected rise in the ratio of the
tinue to suffer from woes over GST refunds. year, and that amount will dou- older individuals. More specifi- annual deficit to GDP.
Gross fixed capital formation, which indicates the investment rate in the econ- ble, to $1.6 trillion, in 2028. During cally, spending on Social Security The best way to slow the cost of Social Security is
omy and is the key to sustaining growth, has also maintained a healthy trend. this period, the deficit as a share of retirement benefits is predicted to raise the age threshold for receiving full benefits.
For the second successive quarter, it grew as a per cent of gross domestic prod- GDP will increase from 4 per cent to rise from 4.9 per cent of GDP to Back in 1983, Congress agreed on a bipartisan basis
uct (GDP). At 31.4 per cent of GDP for 2017-18, it still has some catch-up to do, but to 5.1 per cent. As a result of these 6 per cent. Government spend- that this threshold should be raised gradually from
annual deficits, the federal gov- ing on health care for the aged in 65 years to 67, cutting the long-run cost of Social
its steady, though slow, rise since 2016-17 is comforting for the economy’s growth
ernment’s debt will rise from $16 the Medicare programme — Security by about 1.2 per cent of GDP. Since 1983, the
prospects. trillion now to $28 trillion in 2028. which, like Social Security, is not average life expectancy of individuals in their mid-
For the Reserve Bank of India, however, which is to review the monetary The federal government’s debt means tested — will rise from 3.5 60s has increased by about three years. Raising the
policy next week, the national income numbers for the full year will present has risen from less than 40 per per cent of GDP to 5.1 per cent. So future age for full benefits from 67 to 70 would cut
a new set of challenges. Inflationary pressure in the economy has not yet sub- cent of GDP a decade ago to 78 per these two programmes will raise the long-run cost of Social Security by about 2 per
sided. Financial outflows in the last several weeks have complicated the cent now, and the Congressional the annual deficit by 2.7 per cent cent of GDP.
risks. With the improved numbers on economic growth for the last year and Budget Office (CBO) predicts that MARTIN FELDSTEIN of GDP. At this time, slowing the growth of Social Security
the continuing risks of inflation and financial outflows, the RBI may have to the ratio will rise to 96 per cent in This officially projected and Medicare is not a politically viable option. But as
2028. Because foreign investors hold the majority of increase in the annual deficit would be even worse the deficit increases and interest rates rise, the pub-
look at its options afresh.
US government debt, this projection implies that but for the fact that the cuts in personal income tax lic and the Congress might return to this well-tried
they will absorb more than $6 trillion in US bonds enacted last year will lapse after 2025, reducing the approach.
during the next ten years. Long-term interest rates on 2028 deficit by 1 per cent of GDP. The official deficit
Opposition arithmetic US debt will have to rise substantially to induce
domestic and foreign investors alike to hold this
projections also assume that the recently enacted
increases in spending on defence and non-defence
Martin Feldstein, Professor of Economics at Harvard
University and President Emeritus of the National Bureau
very large increase. discretionary programmes will be just a temporary of Economic Research, chaired President Ronald Reagan’s
The by-poll outcome is a big jolt for the BJP Why is this happening? Had last year’s tax legis- boost. Defence spending is expected to decline from Council of Economic Advisers from 1982 to 1984
lation not been enacted, the 2028 debt ratio would 3.1 per cent of GDP now to 2.6 per cent in 2028, while ©Project Syndicate, 2018

s a trickle becoming a flood? Earlier this year, the defeat of the ruling still reach 93 per cent of GDP, according to the CBO. the GDP share of non-defence discretionary spend- www.project-syndicate.org
Bharatiya Janata Party (BJP) in the Phulpur and Gorakhpur Lok Sabha by-
elections — won by the party by a margin of over 300,000 votes each in the
2014 general elections — was dismissed as an aberration, an upset achieved
by an artificially unified Opposition. The BJP said airily that unity of parties with
conflicting interests was transactional and could not last. Prime Minister
Narendra Modi repeated this at Baghpat earlier this week on the eve of the
To Orban via Thatcher, Harper and Yew
he by-poll results across the country, equipping them with skills. It was hoped that India funding was kept out of this drive.) For public con-
Kairana election, warning voters that enemies of the BJP were coming togeth- announced on Thursday, are in stark con- would finally accept that its true inclination was sumption, big bang reforms were back in favour and
er for selfish ends. But this argument seems to have had few takers. In 2014, the trast to the euphoria experienced by right of centre and, under Mr Modi, get the chance there was not a moment to lose. Mr Modi was now
BJP had won Kairana by a margin of over 200,000 votes. It lost the seat by around Narendra Modi and the Bharatiya Janata Party to act on it. Minimum government, maximum gov- India’s answer to Singapore’s Lee Kuan Yew: Clear-
45,000 votes yesterday. It also lost the Nurpur Assembly seat to the Samajwadi exactly four years ago. In May 2014, the Indian elec- ernance was the motto and markets were supposed cut thinking focused on achieving growth with a
Party. This, despite being in government. torate thought it had found the solution to all its to find the solutions. It appeared as if Mr Modi could strong dose of illiberality thrown in. The only prob-
It is not just Uttar Pradesh. The party lost the Bhandara-Gondia constituen- problems in Mr Modi’s leadership. As against the disband any policy and any institution (remember lem with this phase was that economic growth fal-
cy in Maharashtra after its own sitting MP quit the BJP following public criticism bumbling and mumbling Manmohan Singh-led Planning Commission) regardless of its history, tered under the strain of Mr Modi’s policy enthusi-
government, Mr Modi had come across as someone provenance, role and achievement. asm. And that robbed the LKY-type image building
of Mr Modi. The BJP’s humiliation can only have deepened by the fact that it has
who had the commonsensical answer to all wor- of its sheen. People were increasingly asking about
had to cede the seat to the Nationalist Congress Party, currently only a bit play- ries. For instance, to farmers, he promised higher Stephen Harper jobs and the PM had little more than pakoda-selling
er in the politics of the state. Despite being in power in Jharkhand, the BJP could prices, and to consumers, he promised lower prices. The Reagan-Thatcher phase carried on until Mr Modi to offer.
not win the Silli and Gomiya Assembly seats because the entire Opposition sup- The promises flew in all directions and were made came up against his first real challenge — reforming
ported the Jharkhand Mukti Morcha (JMM), which retained both. to everyone in a secular manner, regardless of age, land acquisition in India. After failing to amend the Victor Orban
But even in constituencies where the Opposition was not unified, the BJP’s gender, class and caste barriers. For land acquisition law despite repeat- We are now in the fourth phase. That’s because eco-
performance has been below par. In Chengannur, Kerala, a state where the BJP some, although, it was enough that ed Ordinances, he finally gave up nomic growth and jobs do not matter as much. That's
is making a determined bid to mark its presence, it stayed a distant third though he was a kattar Hindu (a firm on the issue in the first half of 2015. because, if you listen to the government, all this has
believer in Hinduism) and could Since then the official line seems to been achieved. It is now about saving the country, in
opposition coalitions challenged each other. Its alliance partner, the Shiromani
build roads. But, the fact remains be that India does not have a land a manner of speaking, from those who are not hon-
Akali Dal (SAD), lost the Shahkot Assembly constituency to the Congress even that he never clarified, nor was he acquisition problem. Many also est and patriotic. That is why, Mr Modi is increasingly
though no opposition unity was in evidence. The only good news for the ruling asked by anyone, about the vari- saw the BJP’s resounding loss in being grouped with the likes of Viktor Orban, prime
party came from the east. In the Maheshtala Assembly constituency in West ous internal contradictions in such the Delhi Assembly election to a minister of Hungary, and Recep Tayyip Erdogan,
Bengal, the BJP displaced the CPI-M to come in at second place. It has formed promises. Not surprisingly, people political upstart in the Aam Aadmi president of Turkey. The first thought that comes to
an alliance with the ruling Nationalist Democratic Progressive Party (NDPP) and have spent the last four years point- Party and jibes such as “suit boot ki mind when you think of these leaders is the “illib-
ing out how many promises remain sarkar” bemoaning Mr Modi’s pro- erality” of their regimes. Mr Orban, in fact, went on
won the Nagaland seat. It also managed to defeat the Shiv Sena to win Palghar
in Maharashtra, driving another nail in the coffin of relations with its most frac- unfulfilled. To blunt such criti- CLAY SQUARE market stance as significant con- record in July 2014 to proclaim: The “new state that
cisms, Modi Sarkar has lurched tributory factors bringing about an we are building is an illiberal state.” That is not to say
tious alliance partner.
from one propaganda drive to
UDIT MISRA almost 180-degree change in Modi that he is undemocratic. Far from it. Since then he
After the latest round of by-polls, warning bells ought to begin ringing in the another. Here’s a recap. The four Sarkar’s positioning. From mid- has won another term and remains popular just like
BJP headquarters, which has clearly been caught unawares by the segueing of years of Modi Sarkar can be summarised under four 2015 to October 2016, it was thought that the real wis- Mr Putin is in Russia and Mr Erdogan is in Turkey.
opposition arithmetic into winning chemistry. That is not good news for the par- broad phases. Each of these phases, even though dom lay in incremental change, not big bang reform,
ty in the run-up to the 2019 elections. True, contradictions in the Opposition they are not watertight compartments, gives a as was promised earlier. During this phase, Mr Modi Next phase?
abound. Those working in the field in Kairana noted that the Congress had been flavour of how Mr Modi’s rule was seen — both by was seen as India’s answer to conservative Canadian It is hard to suggest what the next phase of propa-
somnolent throughout the campaign. No Congress leader of any standing cam- its supporters and its detractors. PM Stephen Harper, who was known for this policy ganda may be. But it is said that “propaganda is that
paigned for the NCP in Bhandara-Gondia and the justification was that the approach. branch of the art of lying which consists in nearly
Thatcher and Reagan deceiving your friends without quite deceiving your
Congress does not go where it is not invited. It is also uncertain whether the Lee Kuan Yew
This was the first phase and its beginning pre-dates enemies”. In essence, biggest victims of Modi
Opposition comprising political parties that are bitter rivals in several states can Mr Modi becoming prime minister. During this The tide of propaganda turned yet again when, in the Sarkar’s ever-changing narratives are its support-
really stay together. But while Mr Narendra Modi’s popularity and credibility phase (mid-2013 to mid-2015), Mr Modi was seen as immediate aftermath of the demonetisation ers. That should be cause for worry for the BJP more
remain high, people are beginning to notice the sudden wealth of local BJP India’s answer to Margaret Thatcher and Ronald announcement, it was held that the days of incre- than anything else. The next election is unlikely to
cadres, their swagger and their challenging mien. In India, more than one elec- Reagan. Mr Modi berated the Congress-led UPA gov- mentalism were over and Mr Modi would not stop at be fought on economic growth data (not that we
tion has proved that seemingly popular leaders can be unseated in days by a wave ernment for the politics of doles and handouts. The anything short of a transformation of the Indian have accurate and comparable data). Mr Modi’s fate
of sympathy for the underdog. real solutions lay not in wasteful rural employment economy, society and polity. Mr Modi was reintro- rests on one simple question: Do his supporters still
guarantee-type programmes but in empowering the duced as the man determined to bring about trans- believe in him? More so, because his detractors sure-
young to voluntarily join India’s growth story by parency in public life. (For obvious reasons, political ly dislike him even more and are now joining hands.

Evolution of people management sector banks enjoyed in the marketplace,

it was a recipe for lethargy and bureau-
cratic processes to set in.
The first part of the book has concerns
management was seen in the framework
of union-management relationship,
industrial harmony and worker rights. He
moved to middle management when the
with some interesting academic frame-
works from the outer world). At the same
time, the paradigm changes in the bank
also reflected how the personnel (later
industrial relations in a particular setting. clearly. In any organisation, we find struc- about managing employee relations with economy opened up when the thinking human resource) function was changing
The second looks at the evolving leader- tures for career progression, lateral hires the linkage to the business performance had moved from personnel management elsewhere. Given that Mr Khandelwal was
ship strategies in managing a workforce and churn. Organisations also have a strat- being weak. The business performance is to human resource management and the active in the HR network, the expectation
and aligning it with the overall objectives egy on leadership transitions. On reading important, but the management of per- business imperatives involved incentives, was that some connections to the changes
of the organisation, and the third part inte- the book (and seeing the public sector sonnel is more focused on how to commu- motivation and personal development. in the HR world outside of the bank would
BOOK REVIEW grates the two parts towards crystalised
concepts. The methods are systematic and
banks) we know that: (a) there is no later-
al recruitment; and (b) the top manage-
nicate, manage militancy, disciplinary pro-
cedures, transfers, and industrial relations.
He moved to the senior management
when the concepts moved to human
also have some resonance and relevance
in the book. Of course, there is always a
M S SRIRAM rigorous in the first part, reflective and ment at the whole-time director level is Fixing these ensures that the business resource development, empowerment wish in every book and it is rare that a
experiential in the second. mostly a lateral hire from outside, and if works. In the second part of the book (also and looking at employees as individuals reviewer finds a book to be perfect.

t not often that we have an academic We have a researcher, hired in the somebody from within the bank makes it when the banking sector is opened for pri- who contribute to the business. Mr
who is also a hands-on manager. There training establishment of a mainstream (as in the case of Mr Khandelwal) it is only vate sector participation), we see that the Khandelwal’s canvas gets wider in each of The reviewer is a faculty member with Centre
are always occasions when senior pro- commercial bank who is sucked into the a matter of chance. paradigm moves beyond industrial rela- the stages. for Public Policy, Indian Institute of
fessionals take a break to write their mem- management function where he needs to So, we have a stable middle and lower tions to developing human resources to The story of Bank of Baroda is unique Management, Bangalore
oirs, teach and do an academic type of redefine his role and put his research into middle management and a moving top take on the challenges in the marketplace because of the specific actions taken dur- mssriram@pm.me
job. The obverse that an academic makes action, while navigating the complex management. In this structure, the organ- and how Bank of Baroda was internally ing Mr Khandelwal’s leadership. However,
a switch to a job of a hands-on profes- functions of banking, much beyond the isational culture is deeply set in the lower responding to the ecosystem changes. it is also the story of the public sector CEO CHESS MASTER OR GARDENER:
sional is even more difficult. It is in this comfort zone of an HR professional. Since and middle management and the top It is interesting to note that Mr banks. The uniqueness is that Mr
binary world that we need to see Anil the whole book is set within a single management has little time to change any Khandelwal’s career, the larger shifts in Khandelwal was there at the helm, with all
Khandelwal’s book. Although the title may organisation, it is also possible for us to see of these with the proverbial tail wagging the thinking pattern of management of the tools and academic inputs at his com-
indicate that this is a book on leadership how the interventions have played out at the dog. Add the complication of the pub- human resources and the competitive and mand to undertake fundamental human FOR BANK OF BARODA
styles, it has much more on offer. various stages. lic sector and, therefore, no hire and fire market forces have all moved in harmony. resource-centric reforms. Anil K Khandelwal
This book has three parts. The first is That Indian public sector banks have a policy, and the tail becomes even stronger. Mr Khandelwal was somewhat junior in As I was reading, one aspect struck me. Oxford University Press
more academic in nature examining flawed management structure comes out With the near-monopoly that the public the hierarchy when the concept of people The book is inward looking (embedded 360 pages; ~750