Just when I thought I was out… they pulled me back in. Or, as they say, it is in the nature of bizarre things that you cannot look away. When I wrote last week about Modi's black box (newsflash: it is getting blacker), I thought this week I would move on to better things. But not a chance. Things got more bizarre and fascinating in India.
Last week, the assumption was that given India's massive bureaucracy and diplomatic muscle, the country would be saved by the bell and somehow manage to dodge the twenty-five per cent additional tariffs as a penalty for buying, refining and reselling embargoed Russian oil. Alas, that was not to be. Caught in the eddies of misfortune, the country walked right into it. When it came, the defence was weak sauce.
They couldn't make up their mind whether to cite national interest (Russia is too important to lose as a partner), sovereignty (India does what it wants), or highlight the alleged double standards (you did not penalise China). So the response was a mangled and garbled mix of all three. Why not stick to one? Because it is difficult to qualify any of these diplomatically. If Russia is such an indispensable partner, then why were you stringing along Ukraine? It is India's sovereign right to trade with whosoever it wants, but then it is America's sovereign right to slap as many tariffs as it wishes on goods and services coming into the country. And how will you explain your objection to the exemptions when you are actively courting China to make America jealous? Garbled reaction, zero impact.
After the fifty per cent tariffs and the exemptions given to certain sectors like pharmaceuticals are accounted for, out of $87 billion worth of Indian exports to America, nearly half is impacted. This includes textiles (representing nearly 70 per cent of the micro, small and medium (MSME) sector companies), footwear, carpets, leather, seafood and shrimp businesses, which are among the only few labour-intensive industries. One by one, as these companies began to shutter, you could imagine the human toll.
India says it will explore other markets, but thanks to the competence of Modi's predecessors, most of those markets are already explored and optimised. And then Modi spoke about the economic strategy ahead, namely swadesh (localism) and atmanirbharta (self-reliance). But his strategy was amazing. He said he didn't care who invested or whether the currency was black or white; all he cared about was that the products made should have a native smell. This from a government that nearly wiped out the MSME sector during its first term through its demonetisation campaign in the name of combatting black money.
Swadesh could have worked if the middle class was still an engine of growth. What do the numbers say? Unfortunately, the numbers are not trustworthy. Since 2014, the Indian government has scuttled the release of consumer data or job numbers. The World Bank says the poverty number has gone down. But where does it get its data? The Indian government, which has nearly abandoned the exercise of collecting objective data. A perfect ouroboros of opacity. So what do we do? We reverse-engineer the numbers.
The Pradhan Mantri Garib Kalyan Anna Yojana is a commendable food support programme. It provides a whopping 810 million people (55% of the population) with 5 kilos of ration (mostly wheat) per month. As with any ration scheme, you have to queue up to get it. And it is being collected. How much is 5 kg of wheat in India today? INR 125-130 ($1.5). Do you think someone without severe need would go out and line up to get this relief per month in punishing extreme weather? Clearly, the poverty number in India is underreported, if not entirely fabricated. Do you think such a market can be a good substitute for America with its high purchasing power? Modi inherited a Ferrari and has already managed to turn it into a bullock cart.
If that was not enough, US policymakers pointed out that most of the oil bought from Russia did not go to the Indian public's relief. Rich companies like Mukesh Ambani's Reliance refined it and sold it off in the open market. Of the $16 billion profits, six billion were pocketed by Ambani and six went to a company called Nayara (a mix of Russian oligarchs and initially Singaporean, now Italian, investors). No wonder then that Peter Navarro called the Ukraine war "Modi's war".
One of the finest economists of our times, Raghuram Rajan, recently proposed that since the relief is not going to the common man, while he will be on the receiving end of the punitive tariffs, the profiteers should be taxed and this money spent on him instead. Great idea, but funny story. It so happens that when this trade began, a windfall tax was indeed imposed. But here is the thing: these rich companies passed on the taxes to the consumers. Since passing it on to the bulk purchasers in the open market would have made their prices less competitive, they did no such thing. Instead, the domestic consumers were asked to pick up the tab. Another predatory ouroboros.
As if all this was not enough, a civil war broke out on social media among the ruling party's supporters. Foreign Minister Jaishankar's supporters had to endure attacks by NSA Ajit Doval's supporters. Why? Because Jaishankar's son is the head of the American chapter of Ambani-supported think tank, the Observer Research Foundation (ORF). Incidentally, Doval's two sons also run its rival think tank, the India Foundation. Now, Jaishankar was being accused of sabotaging Modi and India's interests to benefit Ambani. Adani supports his own think tank called the Chintan Research Foundation (CRF). His minions also chipped in.
Now investigations have been launched into the Ambani family's various interests. But the Russian oil trade has not stopped. Hence, the Indian business class will keep paying a heavy price only because Modi is beholden to these two big businessmen.
Always thirsty for international optics which he can use for domestic power, Modi is going to China for the SCO summit in the desperate hope of blackmailing America. Let's see how that works out.
Meanwhile, Indian embeds in the western media are raising questions about President Trump's health. The purpose is to build consensus for his replacement. And since India seeks pleasure from hurting Pakistan, the Indian state has used water to do what its warplanes could not accomplish. This should help lower the temperature against Modi for a few more days. It is a matter of daily survival now.
