Monday, May 16, 2016

The Economy Is Paying the 'Price' Of the Vote ....

I was on a vacation last month. To escape the scorching heat of Mumbai, I decided to take shelter in Nilgiris...and booked a ticket to Coimbatore. My final destination was Ooty and Coonor. As the journey date came closer, I was excited to take a break from local train travel in Mumbai and hop on a toy train amidst mountains and lush greenery instead. 

Don't worry - I'm not about to go into a travel account and make you look at my pictures. The reason I'm telling you this has to do with the seizure of Rs 570 crore on May 14 in Tamil Nadu state...funds suspected to lure voters. 

On the way from Coimbatore to Ooty, the police stopped our cab twice. They asked us how much cash we were carrying. Our answer did not satisfy them. So they checked our bags, and only then we were allowed to carry on. 

This was obviously strange for us, so we quizzed our local driver who suggested it was because of the upcoming elections. The week before, a vehicle was seized with Rs 12 crore in cash...going in the direction of a small village to woo voters and buy votes. 

It's one thing to read about this in newspapers, but experiencing it firsthand was saddening. 

As per Mr Rajan, it is estimated that Rs 500-600 billion in cash would increase with public in the poll bound states. Several hours after the Rs 5.7 billion was seized the other day, the SBI claimed it was an official transfer. Few believe it. And rightly so. 

Over the years, despite rising awareness and social media activity, the political parties seem to have gotten even more brazen in their bribes for votes. 

Their manifestos are full of freebies rather than policy. 'Gareebee Hataao', education for all, employment for all...are things of the past. 

Modern manifestos assure mobile phones to all ration card holders...100 free units of power (with no need to pay electricity bills) lap tops for students of Classes XI and XII...double gold for mangalsutra from the existing 4 grams...Rs 500 coupons for people to buy handloom clothes from state-run Co-optex during farm loans...waiver of farm loans...vehicle subsidies......housing schemes, resolutions to prohibit shale gas projects...the list goes on. 

I'm not sure about the economy, but politicians have indeed 'progressed' and seem to be quite 'upwardly mobile'. 

And when it comes to double standards, these parties put anyone to shame. You see, prohibition is another point of focus in the Tamil Nadu election manifesto, to woo women's votes. Interestingly, Tamil Nadu State Marketing Corporation, or TASMAC, a state-owned company that has 29,000 employees and annual revenues of Rs 262 billion, enjoys a monopoly on the sale of liquor. Not to mention TASMAC has been one of the tools to subsidise the freebies by the state political parties. 

It's not just Tamil Nadu. Corruption and dole politics is not a one-state phenomenon. Cash has been squandered to purchase votes - at times causing stampedes - across states. Even the central party is not immune to it...though they're approach might be more refined. 

A case in point is the popular unemployment allowance scheme, MGNREGA. Almost a decade old now, Mr Modi called the scheme a 'living monument of the Congress party's failure'. However, after two years in power, the Modi government has a different view on it. 

Finance Minister Mr Jaitley recently allocated Rs 370 billion, the highest ever budgetary support, to the scheme and promised more. The government is not ready to give up subsidy politics for a growth-led model yet. 

This indicates that the government is skeptical about the employment situation in India and the prospect of natural growth in the Indian economy. Those betting on macro tailwinds have reasons to be cautious. Investors should rather do some second-level thinking and bet on something tangible

Economic growth will be a mirage as long as parties count on subsidies and dole politics instead of real development and empowering citizens. No wonder the public sector banks and PSUs are in dire straits... 

Meanwhile crony capitalism and black money go unabated, funding the ambitions of the political parties. When political parties are so brazen, crooks like Vijay Mallya are bound to flourish. Unless the loopholes in the system are plugged, India's fight against corruption, black money, and slow growth will remain a lost cause. 

The above has been written by Richa Agarwal for Equitymaster.

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