Disequilibrium: HUMAN METRONOME

The Great Indian Vote Kumbh is up and running as Hindu religiosity becomes the number one draw, from Sabrimala to Ram Mandir, its reverberations shrill and divisive. Will PM Modi go back to the economy to provide succour to millions of distressed or will he opt to take the high road to Ayodhya to return to power? Both ships appear to have sailed, but the one on the river Saryu is gaining traction and precedence as RBI reserves will be used to pump prime populist schemes like DBT for farmers and Universal Basic Income for the underprivileged. Time though is running out on both exercises as desperation takes over

In many ways the indefatigable Narendra Modi is a human metronome, his sense of timing and comprehension of the political pulse impeccable. As an insider said to me the other day - He didn't come this far to fritter it all away merely after the losses in three states. Yes, it is a setback, but the vote shares suggest that the BJP is very much in the game. Equally it is said that the strongest have their moments of fatigue. From the challenger, Modi has over the last five years become the incumbent and the man to beat. One can argue that wars are not won by evacuation or abdication, though Britain tested this axiom twice under different circumstances in the Second Great War and yet won. First in Dunkirk and then Singapore. The Dunkirk evacuation, code-named Operation Dynamo, also known as the Miracle of Dunkirk, was the forced evacuation of Allied soldiers during World War II from the beaches and harbour of Dunkirk, in the north of France, between May 26 and June 4, 1940. The gargantuan and extremely desperate operation commenced after large numbers of Belgian, British, and French troops were cut off and surrounded by German troops during the six-week long Battle of France. Close to 350,000 soldiers were evacuated in 850 boats of varied shape and size.

Singapore, though, was different to Dunkirk. The Battle of Singapore, also known as the Fall of Singapore, was fought in a different theatre but was equally brutal when the Japanese descended on the British stronghold of Singapore. Virtually impregnable Singapore was a major British military base and the gateway to British imperial interwar defence planning for South-East Asia and the South-West Pacific. The fighting in Singapore lasted from February 8 to 15, 1942, after the two months during which Japanese forces had advanced down the Malaya peninsula. The campaign, including the final battle, was a decisive Japanese victory, resulting in the Japanese capture of Singapore and the largest British surrender in history. About 80,000 British, Indian and Australian troops in Singapore became PoWs, joining 50,000 taken by the Japanese in the earlier Malayan campaign. The British prime minister, Winston Churchill, called it the "worst disaster" in British military history. Japanese casualties during the fighting in Singapore amounted to 1,714 killed and 3,378 wounded. Throughout the entire 70-day campaign in Malaya and Singapore, total British casualties amounted to 8,708 killed or wounded and 130,000 captured, while Japanese losses during this period amounted to 9,824 battle casualties. During this time the Japanese had advanced a total of 650 miles (1,050 km) from Singora, Thailand, to the southern-coast of Singapore at a rate of 9 miles (14 km) a day. Yet the resolute British fought back to defend their little isle and thwart the Germans along with their allies the Americans.


But back to Modi and the general elections. Hobbled by the constant use of gradualism and incrementalism, there isn't a single tangible transformative idea that the BJP has come up with over the last five years. Governed by incrementalism, obsessed with legislation, blinded by the idea of majoritarianism and impervious to an ever decelerating economy's varied imponderables, the BJP has at no stage in these last five years shown a stomach for deep seated reform. Modi has undertaken administrative reform of all hues but has failed on the economic front. Despite this, astute political pundits reckon that he is far from a desperate prey cornered and submissive, unable to run. Time is short, but in Indian polity, a calculus which is malleable and ductile till the very end, making the right choices also matters. Modi must make intuitive choices while taking decisions and while he appears to have held back barring the curious case of demonetisation, which was used to blunt Behenji Mayawati's cash economy and it paid spectacular dividends because Modi swept the UP state polls that followed. Of course, the hardship endured by the common man and the demand destruction that ensued debilitated the MSME and export sectors. Its reverberations are still being felt and the recent state poll results were a barometer of a buffeted economy. Modi’s biggest punt was thus a non sequitor.

Modi's art of war is forged in the crucible of battle. He has never lost an election (barring the two reverses in Delhi and Bihar) and he would like to believe that he is not going to lose the big one going forward. His strategy will remain predicated on Hindu chauvinism and ethno centrisim with some faux nationalism thrown in. This is distinct from Ram Mandir machismo, If he could meld the two, then he has a winner. He knows that he still retains enormous personal equity with the voter and this will be his weapon of choice in the impending combat zone. Modi has never ever formally pitched for the Ram Mandir till his interaction on new year's day with a news service. While he is not one to suss around, as PM he cannot be seen to say anything that influences the judiciary which has started hearing the matter from January 4 onwards. Meanwhile, pressure is being built from all sides including the sarsangchalak of the RSS, Mohan Bhagwat. PTI reported that he asserted that the Ram Mandir was a certainty and appealed to people to have full faith in Lord Rama while reacting to Prime Minister Narendra Modi’s statement during an interview that the government was waiting for all legal proceedings to end. When pointed out that the BJP-led government had little time left before the general elections and imposition of the code of conduct, Bhagwat said time could be changed without elaborating further. When his attention was drawn to a statement made by the RSS general secretary Bhaiyyaji Joshi that RSS was firm on a government ordinance, Bhagwat said that both shared the same view. The RSS, a day earlier, rejected the PM’s suggestion that an ordinance to build the Ram Mandir would arise only after the Supreme Court, which was hearing the matter, delivered its verdict. After the RSS’s reaction, the Vishwa Hindu Parishad (VHP) also joined the fountainhead of the Sangh Parivar and demanded that a law be enacted or an ordinance be promulgated to enable the speedy construction of a grand Ram temple in Ayodhya. The RSS general secretary, Suresh (Bhaiyyaji) Joshi had said that his organisation wanted the government to introduce a law to construct the temple, immediately. Reacting to an interview of the PM where the PM said that the ordinance on the Ram Mandir could arise only after legal process got over and the SC gave its verdict, Joshi said that he did not know what the PM had said exactly about the issue but the RSS wanted that the government to bring a law to build the Ram temple immediately. “We stand by our decision,” he added.


The intensity of the pressure is obvious. The ratcheting up of the volume visible as daylight breaking from the inner recesses of darkness. Both the PM and the sarsangchalak know that this is their best chance to build a bhavya mandir. Strange things have happened in Indian general hustings; and they are unwilling to wait five years in the eventuality that a rag tag bobtail Left of Centre Kichdi seizes power. To consolidate the Hindu vote yet again, the ship has to sail down the Saryu river, this will combine the festering Hindu majority vote and tie it in neatly with the aspiration of the Hindu to build a Mandir in Ayodhya. Years of appeasement to minorities by pandering unabashedly to them has built residual hatred towards fellow Indians, albeit minorities. The political discourse thereby has been altered over the last five years. Their thinking is that the time is here and now and in terms of political dividend, it is time to reap. If Hindu machismo was to coalesce with the underlying fervour of building a Ram Mandir, then it could be win-win for the BJP. Circumventing the judicial process is not an option and the timelines are too tightly drawn. That is the risk that the BJP has to take.

In his interview, the PM referred to the general elections twice, once when he spoke about going to the janata for janadesh and the other when he said that it will be a contest between the janata and mahagathbandhan. Delhi's underbelly, always thick with rumours, however is agog with the news that a political masterstroke is expected in February which will turn the sentiment in BJP's favour. ‘Desh ka samikaran badal jayega’ is one way of describing the event, cataclysmic which can revive the dwindling fortunes of BJP. You cannot call an election in India, more so a general election. But it is clear that the BJP has an internal timetable on the mandir and this is in synchronicity with the RSS and other Sangh affiliates. The event horizon points to February because then the code of conduct for the elections will kick in. This surety of thought process can only come from the fact that the PM and BJP believe that the judiciary will expedite the decision-making process on the mandir which will then allow the government to do what it deems right. If one reads between the lines, then the emergent headline is that the apex court will take a view on the title suit which is favourably inclined towards right wing Hindu forces. One cannot second guess the Supreme Court and it will be foolhardy to do so, but if one studies the political messaging then it reckons that there is a likelihood of this happening. This is what I meant by inherent RISK. For if this storyboard goes awry, then the BJP has to depend solely on its second prong, something that it strangely is loath to doing.

That the BJP faces an erosion in its 2014 tally is a given. Take the central Indian troika of states that went to the polls: of the 65 seats in 2014, the BJP bagged 62. That is unlikely to happen this year. Ditto for many other states where it routed the Congress in a straight face off (see boxes). To offset many of these perceived losses, the BJP will try and storm new bastions like West Bengal and Odisha. Modi's other prong has to be boosting public spending across the board, and for a cash strapped government to do this, he requires RBI's surplus urgently. Quantum Advisory broke down the problem succinctly – One notices that the RBI indeed has higher reserves as compared to other emerging nations. But if you look at the row under ‘Memo’ titled Revaluation reserves, the bulk of those reserves are arising out of revaluation of its assets, i.e, over the years as the rupee depreciated against the USD, GBP, EUR etc, gold and foreign assets held by the RBI when translated into the current rupee value, leads to an increase in its asset value. For eg. 100bln invested in 2010 @ USD/INR of 45, valued today at USD/INR of 70, will show a valuation gain when reported in rupee terms. All such gains are non-cash, notional and are shown as higher asset values and as revaluation reserves on the liabilities side. As and when these assets are sold, the gain will be booked and cash realised. The RBI thus does not have very high free cash reserves which it can give back to the government.

How can the RBI then transfer its ‘excess’ revaluation reserves to the government?

1.Sell the asset; raise the cash and transfer to government – depending on how much the government demands, the RBI will have to sell foreign bonds in the global market or government bonds in the local market of that amount ($20 bn-$50 bn).

*Selling foreign assets – It can be easily sold, but the reduction in foreign exchange assets of that tune will be seen negatively by global investors and might be deemed to be less than required to manage during the next crisis.

*Selling government bonds – Domestic bond markets cannot absorb selling of bonds to that extent unless supported in return by an equivalent amount of OMO purchases

1.Extinguish the asset and reduce the government liability – The government bonds that the RBI owns are a liability of the government. So instead of selling the bonds in the market, the RBI can waive its rights on those bonds, reduce its holding from asset and reserves and the government can extinguish its liability and reduce its outstanding debt.

*No cash is transferred – This is a better way of doing it, markets don’t get disrupted and government gets a fiscal benefit of lower outstanding debt to that extent.

This second option though may not be palatable to the government. Our view is that the demand from the RBI of its excess reserves is to get a cash bonanza, which the government can then use it for a special handout to citizens as a political benefit before the 2019 general elections.

The RBI has bargained with the government for now to form a committee to look into this matter and determine what should be the level of reserves that the RBI should carry on its books and is governments demand legitimate and if yes, how much can the RBI give away.


By attacking the RBI’s independence and emasculating it further by installing a North Block babu, questions have been asked about an agenda driven by the government’s single mindedness of purpose to destroy institutions. PM Modi came to power on the back of growth, development and jobs, essentially a new deal, one that kick started a somnolent economy and fired up the bureaucracy. Neither has happened. Global and local factors continue to roil a decelerating economy. The only way out of this cul de sac is populism. Investments have plunged to a 14-year low, private sector projects have fallen off the cliff, down 64 per cent on the last metric and if one was to give fiscal prudence the go by, then it could be catastrophic. Religiosity has overtaken everything else, its primacy unfortunately having a garrote-like grip on the nation’s narrative. From Sabarimala in the Deep South to cow vigilantism and Ram Mandir in the north, India appears divided and fractious. Instead of the economy and its imperatives, religion has gained paramountcy over politics and the economy in India circa 2019. The cow has become ubiquitous and all pervasive even as rural and agrarian distress is all encompassing, the pain distressing and savage. Course correctives are vital, but instead we are taking a tumble down the abyss of religion with a cow cess being imposed by the UP government.

Fiscal discipline will be given a miss, a new math will boost spending with schemes like DBT in agriculture and a Universal Basic Income for the poor and under privileged. Both should have come earlier, but fiscal health did not permit it as bean counters won the day. But now in an election year, propriety may be overlooked at the altar of populism as desperation becomes the norm. Hapless common folk in India are caught between a rock and a very hard place as people centric issues don’t matter to the main political parties as vicious and shrill grandstanding on religious conversation and dynasties and familia grab mind space. Divisive identity politics has emerged out of the Modi dispensation as Muslim bashing and Islamophobia have taken over. The new cult of Hindu dominance overriding everything in its path.

This will remain the bulwark of PM Modi’s strategy as he takes on a rampaging opposition. How will the voter react to all this chaos and bedlam where mobocracy and lumpen proletariat have become indispensable elements? This is the election once again for change or for continuity, India will decide in its own endearing manner. The vote Kumbh is up and running.


Sandeep Bamzai