The entire nation is chanting Modi mantra. It is not only the strength of Modi which propelled him to this national craze but the ineffiiciency and malgovernance of congress party which made Modi a hero. Narendra Modi is a good orator, and his first public speech at Rewari in Haryana on September 15, after being elected the BJP’s prime ministerial candidate, provided ample evidence of this. I was intrigued, though, by his fulsome tribute to Sardar Vallabhbhai Patel. Modi announced that he is building in Gujarat a statue of Patel, made from iron pieces contributed by every village in India, which would be the tallest in the world, twice the height of the Statue of Liberty. I was intrigued because Sardar Patel was the man who banned the RSS, the institution which Modi joined at the tender age of 15, and which, on his own admission, has played an exceptionally valuable role in moulding his life and thought proces-ses. Patel was India’s home minister when, on February 2, 1948, the government banned the RSS, in pursuance of its “determination to root out the forces of hate and violence that are at work in our country and imperil the freedom of the nation and darken her fair name”. In a September 11, 1948 letter to Guru Madhav Sadashiv Golwalkar, the then RSS sarsanghchalak, the Sardar was forthright in his denunciation of RSS leaders: “All their speeches were full of communal poison. It was not necessary to spread poison in order to enthuse the Hindus and organise for their protection. As a final result of the poison, the country had to suffer the sacrifice of the invaluable life of Gandhiji.” Significantly, the Sardar was never in doubt about the role of the RSS and the Hindu Mahasabha in the murder of the Mahatma. In a letter dated February 27, 1948, to Pandit Nehru, he states this clearly: “It was a fanatical wing of the Hindu Mahasabha directly under Savarkar that hatched the conspiracy and saw it through…Of course, his assassination was welcomed by those of the RSS and Hindu Mahasabha who were strongly opposed to his way of thinking and to his policy.” He reiterates this position in another letter (July 18, 1948) to Shyama Prasad Mookherjee: “As regards the RSS and the Hindu Mahasabha…Our reports do confirm that, as a result of these two bodies, particularly the former, an atmosphere was created in the country in which such a ghastly tragedy became possible.” Incidentally, although Nathuram Godse denied any direct link with the RSS at the time of his trial, many years later, in an interview to Frontline magazine in January 1994, his brother, Gopal, was quite candid about the truth: “All the brothers were in the RSS, Nathuram, Dattatreya, myself and Govind. You can say we grew up in the RSS rather than in our home. It was like a family to us. Nathuram had become a baudhik karyavah (intellectual worker) in the RSS. He said it but he never left it.” Sardar Patel was a staunch follower of Gandhiji and his inclusive vision. His emphatic opposition to the RSS, the institution which mentored Modi and shaped his world view, is documented fact. What is then Modi trying to convey by co-opting Patel and building the world’s tallest statue as a tribute to him? One view could be that Modi agrees with the Sardar about the RSS. After all, there cannot be such a violent difference of opinion, on such a vital matter, between an ardent admirer and his new-found hero. If this is the case, Modi must say so. If not, he should accept that he is lionising Patel through a conscious process of selective amnesia and cynical manipulation, harping on what Patel did to unite India, but deliberately ignoring his strong views on those who wanted to divide her through the politics of communal incitement and violence. Available evidence is definitive that the RSS played a key role in the political choice of Modi to lead the BJP. The evidence is also categorical that Modi is deeply influenced by the philosophy of the RSS. Modi was a pracharak in the RSS when Golwalkar, the longest-serving and most ‘successful’ RSS chief was the sarsanghchalak (1940-73). Modi reportedly wrote a book in his praise. Does he agree with Golwalkar’s explicitly stated views that India is an exclusively Hindu nation, with no place for people of other faiths, not even the rights of a citizen? Does he support Golwalkar’s praise of Nazi Germany, for having manifested a nation’s highest pride in exterminating the Jews? Does he believe, like Golwalkar, that the Manusmriti, that consigns shudras to perpe-tual service of Brahmans and advocates servitude of women, is the only valid law for India? The BJP, i think, made a valiant attempt under A B Vajpayee to downplay this regressive thinking and broad-base its political appeal. But with the rise of Modi, the core philosophy of the RSS is back as the driving ideology of the BJP. Sardar Patel, if he is at all watching these developments, must be both a deeply anguished and a very angry man. Angry, because of his clever appropriation by those whom he steadfastly opposed. Anguished, because the vision of India being offered by his new devotees is so different to the one for which he dedicated his entire life.


India-economy20Efforts must be made to safeguard the indigenous investors rather than running after foreign investors. There is a mass exodus of indigenous investors due to the harmful business environment created by the government. The Indian investors are migrating towards the West and greener business pastures elsewhere. If the government is keen to ensure robust economy growth it must eliminate corruption and ensure the prevalence of business friendly ambience. With these methods, India will have enough money power to grow vibrantly.

T.T.Ram Mohan writes in The Hindu on 11 September 2013

India’s policymakers have been at pains to assure foreign investors that there will be no return to capital controls. This followed a lowering of the annual limit on foreign remittances of Indian nationals from $200,000 to $75,000. The move is said to have triggered a rush of outflows on the part of foreign investors fearful that their own investments too might soon be subject to capital controls.
These assurances might make sense in the present turbulent conditions where it is necessary not to further rattle foreign investors already upset by the steep depreciation in the rupee in recent months. On a longer view, however, capital controls may not be as unthinkable or reactionary as they are now thought to be. The pendulum in both academic and policymaking circles appears to be swinging further away from a whole-hearted embrace of financial globalisation. This swing is the result of the convulsions caused by the impending reversal of quantitative easing (QE) in the United States.
Battered currencies
The currencies of several emerging markets — India, Indonesia, South Africa, Brazil, to name a few — have been battered in recent months as foreign investors have withdrawn capital in anticipation of a reversal of QE. Under QE, which the U.S. Federal Reserve commenced in response to the financial crisis of 2007, the Fed starting buying up long-maturity bonds in order to keep long-term interest rates low. We are now into the third round of QE.
In the current round, the Fed has been buying up $85 billion of bonds every month or over a trillion dollars in a year. These purchases expand the flood of dollars in the U.S. market. Since not all of it can be absorbed within the U.S., a big chunk spills into other countries, including emerging markets. The flood of dollars has helped finance low-cost investment in the emerging markets and led to appreciation in their currencies. A reversal of QE spells a flight of funds and a steep fall in currencies.
At St Petersburg, emerging market leaders made a strong plea for calibrating the winding down of monetary stimulus in the advanced economies so as to take into account the impact on emerging markets. Leaders of the advanced world stopped short of giving such categorical assurances. Instead, they urged emerging markets to put their houses in order by pushing through badly needed structural reforms.
Some commentators have pointed out that it may be illegal for central banks in advanced economies to be guided by considerations other than those of their domestic economies. The best that emerging markets can hope for is that conditions in the advanced economies may themselves warrant a gradual withdrawal of monetary stimulus and, perhaps, a delay in the withdrawal. The U.S. Fed is expected to make its stance more clear on September 18.
Tapering of stimulus
The Fed will start withdrawing the stimulus when it becomes clear that economic growth is stronger. The unemployment rate target is 6.5 per cent but the trigger for a tapering, the Fed has indicated, could be an unemployment rate “in the vicinity of 7 per cent”. The August jobs data for the U.S. shows a fall in the unemployment rate to 7 per cent. So, some analysts believe the Fed will withdraw the stimulus right away. That would be bad news for emerging markets. Others believe that the Fed wants the interest rate to remain low until 2016. This would imply that any tapering of the stimulus would be very gradual. That would be excellent news for emerging markets. We should know later this month.
There are two issues that are relevant to India. First, how do we deal with the inevitable tapering in the immediate present? Secondly, how do emerging markets in general cope with the flows and ebbs in money supply emanating from the advanced world?
In respect of the first, we have seen a flurry of activity. On assuming office, RBI Governor Raghuram Rajan announced a concessional window for hedging the foreign currency risk for banks bringing in NRI deposits in dollars. This move is estimated to bring in about $5 billion-$8 billion over the next six months. Earlier, the RBI had announced that it was opening a swap window to sell dollars to oil marketing companies. This is expected to ease the demand for dollars in the market and hence the downward pressure on the rupee.
Further, at the G-20 summit, India and Japan agreed to enhance their bilateral currency swap agreement from $15 billion to $50 billion. This, in effect, enhances India’s forex reserves in the event of a major flight of funds. Again, at the G-20 summit, the BRICS countries announced the creation of a $100 billion fund to fight currency shocks. China will contribute $41 billion, with Russia, India and Brazil each adding $18 billion and South Africa providing $5 billion. These announcements have already led to an appreciation in the rupee in recent days.
Fund exodus
So far, so prudent. The crucial question is: will these measures be adequate to deal with a massive exodus of funds? That depends on just how massive the exodus will turn out to be. FII investments in debt in India stood at $28 billion on September 6; those in equity at $137 billion. Since the end of May, when the Fed announced its plans to taper QE, we have had an exit of $9 billion in debt but only $3 billion in equity. This does indicate that it is debt investments that will be primarily in jeopardy once the Fed commences its tapering. These are clearly of a magnitude that India can deal with.
Some commentators have argued that we are in for a repeat of the East Asian crisis of 1997 and that India cannot escape mauling this time. Such pessimism is misplaced for several reasons. First, the flight of funds in 1997 was primarily on account of loans made by foreign banks and domestic residents taking their savings abroad. FII outflows were a relatively small factor in the flight. Secondly, banks in East Asia were vulnerable because they had borrowed from abroad to finance a domestic property boom. This is not true today of India or, for that matter, the East Asian economies.
Thirdly, East Asian economies learnt that the way to deal with the ‘impossible trinity’ in an open economy — an independent monetary policy, free flows of capital and fixed exchange rates — is to let go of exchange rates. Floating exchange rates provide a natural corrective to volatile flows. Lastly, foreign exchange reserves in East Asia as well as India are at a higher level than in 1997 relative to imports.
1997 crisis
One other lesson from the crisis of 1997 was that it makes sense for emerging economies to go slow on full capital account convertibility. India and China both won plaudits for having done so. The IMF, which had forcefully advocated full convertibility until then, has undergone a significant conversion since.
Is that all there is to coping with volatile capital flows? Alas, the financial crisis of 2007 has brought fresh revelations. At a conference at Jackson Hole in the U.S. last month, a professor at London Business School, Helene Rey, argued that, given the present scale of financial globalisation, even floating exchange rates may not offer emerging markets adequate protection.
Monetary policy in these economies will be at the mercy of the policies of central banks in the main centres of global finance. What emerging markets face is not so much the classical ‘trilemma’ posed by the ‘impossible trinity’ but a dilemma: to have an independent monetary policy or free capital flows. They cannot have both.
Rey thinks it unrealistic to expect central banks of advanced economies to do much to prevent spillovers of their monetary policies to the rest of the world. That leaves emerging markets with three options. One, curb the expansion of credit at a time when money comes flooding in. Two, impose limits on the leverage of financial intermediaries. These two measures fall within the category of ‘macro-prudential measures’. However, macro-prudential measures are not easily put in place or in time. There may be no escape, therefore, from the third option, namely, imposing capital controls. The challenge for policymakers in emerging markets in the years to come may well be to focus on a set of capital controls that will work, at least for short periods.