A confession first: I wasn’t a great admirer of Dr Manmohan Singh, Mark 2 (in his first avatar as the country’s finance minister, he was a completely different person). He did precisely nothing for the economy in terms of reforms and if growth picked up during his tenure, it was largely driven by the global upsurge. Indeed, he constantly tried to paper over the fault lines in the government and was quite content to allow the most brazen of corruption to flourish under his stewardship – and yet claim moral superiority. So, to start with, my expectations of Dr Singh Mark 3 are somewhat on the low side.

Which is why it comes as a really, really pleasant surprise to see Dr Singh stand up and tell the DMK to go take a walk. Of course, it’s always possible, even likely, that Dr Singh, or Sonia Gandhi, will come around and will make some concessions to the DMK, but it’s a positive sign.

There can be little doubt that Dr Singh’s last tenure was marred with charges of corruption and rampant favouritism. While this applied to many ministers/ministries, there were three or four that stood out quite distinctively. There was Praful Patel in the aviation ministry who was pretty much able to hand out as much largesse as he wanted to airport developers; there were the DMK lot led by A Raja (Raja alone, in one deal, gave away $10 bn, or Rs 50,000 crore, to a handful of favoured firms while Dr Singh consoled himself saying nothing could stop an idea whose time had come!); and there was Murli Deora who bent over backwards to help Reliance Industries. Since Deora is a Congressman, and a very loyal one at that, it’s fair to say there is nothing he did that was not sanctioned by either Dr Singh or by Sonia Gandhi.

So, if Dr Singh is even remotely interested in providing a less-blemished government this time around, Sonia Gandhi has to allow him some room for manoeuvre. This is precisely what she has done, at least so far.

What if they patch up, and the DMK gets its pound, several pounds, of flesh? And, we should make it clear, this has little to do with the actual ministers – it is no one’s case that Raja was not doing what his party chief in Chennai wanted. So, it may be an Azhagiri or a Kanimozhi who becomes the telecom minister, the net result will probably be the same. If the DMK gets its choice of ministries, and telecom is seen as the bellwether one here, it will signal that Dr Singh’s ready to play the compromise game to the fullest.

But even if the DMK is given the ministries it wants, this doesn’t necessarily mean the same thing it did the last time around. Last time, the DMK could do pretty much as it chose, so could Praful Patel. This time, with 200+ seats of its own, and another 100 pledged in letters of support with the President, Dr Singh can afford to tell a DMK minister just where to get off. So, he can let the party play its little games here and there (like the type the BJP alleged Raja had done with the BSNL Wimax contract), but stop it when it decides to hand over $10bn at will.

The onus for this, of course, doesn’t rest solely with Dr Singh. The opposition parties need to be alert and draw attention to this. Sadly, this is just not happening. The BJP made a huge noise over a small Wimax tender but kept painfully quiet when the $10bn was being handed out. This, of course, why no one buys its Bofors or Swiss money trails anymore, though my friend Tarun Vijay has passionately argued against this in today’s ET. Tarun’s view is that the BJP had all the right ideas/concerns, but just failed to communicate this to people. Tarun’s wrong, the BJP’s only got tired ideas and no one has time for tired ideas anymore. There’s a whole generation out there who go to Wikipedia each time they hear Bofors and Quattrocchi, so who’s the BJP appealing to?

To get back to Dr Singh, the concept of a clean government is an idea whose time has come. Has the real Dr Singh’s time come?

Led by a landslide victory by the Congress, the UPA has returned to power, with a strong coalition that removes a huge overhang among investors. I had indicated in my previous blog that markets will revisit October 2008 lows if the new government has to take support of the Third Front, which includes Left. The Indian voter turnout to be smarter voted for stability, defeated communal forces and sideline Left for their anti-development economic policies.

The expectation from the new government is reflected in the first trading day after election results on Saturday with the benchmark indices frozen to upper limit of 15 per cent in just nine seconds and trading was halted for the day. Investors now expect big bang economic reform with key pending bills such as insurance and pension to be passed. The market expected to be firm from here and the FII inflows expected to increase due to political stability.

If the corporate earnings cycle improves, we may revisit January 8, 2008 Sensex high of 21,000 any time in the next 12 months. Most US macro data and credit market indicators are showing some improvement. However, incremental gains are modest and indicate continued growth contraction ahead following two quarters of GDP decline of -6.4% (QoQ) and -6.1% (QoQ) during the fourth quarter of 2008 and the first of 2009.

However, the historical evidence shows investors entering the equity market at lower level get a market return of over 50 per cent within six months and the recent slowdown considerably thereafter. Investors entering the equity market after 150 per cent performance get a modest return after three-five years. According to a Credit Suisse report, if you buy the market after a drop of 40 per cent, the probability of posting a positive return after three years is over 70 per cent. After five years, it goes up to over 80 per cent, against close to 40 per cent if you buy after a long rally.

The Sensex has appreciated by 75 per cent in two months from its low of 8,160 on March 9, 2009. So, the short-term upside is limited and for long term gains, economic recovery is the pre-condition.

Now that five years of the UPA are over, what has it achieved? In terms of growth, we’re now worse off, though it’s unfair to blame the government for this since both the rise and fall were very largely driven by global developments, as well as our own business cycle. In terms of deficits, of course, it’s a sad story that can’t be blamed on global developments since the current cycle of fiscal profligacy began before global crisis started affecting us. But this blog is about infrastructure, what are the lasting achievements of the UPA on this front?

On the face of it, many. Two spanking new airports ready at Bangalore and Hyderabad, the ones at Delhi and Mumbai are in the middle of getting completed; we have four Ultra Mega Power Projects which have been bid out and which, over a period of time, will get commissioned; several intra-city metro projects along the lines of the one in Delhi are on their way to getting completed; the list goes on.

It can be no one’s case that infrastructure development is an easy task – recall that none of the so-called ‘fast-track’ power projects talked of in the early 1990s came to fruition despite the combined will of the central government behind them. So each one of the projects just cited is an important breakthrough. The problem, however, is that the UPA has not been able to put in place a mechanism that puts development on the automatic track.

Sorry, I need to amend that. The UPA put in place a mechanism for ensuring infrastructure development was on the automatic track, but it was equally quick to rescind it. So, to ensure that, for instance, only the best developers in the world developed infrastructure in India, and to ensure top-notch firms were not eliminated at the technical evaluation stage (which very often happens), it came up with an evaluation sheet which was an objective one – how many airports have you built before, what traffic did these airports have, how many highways have you built etc. (In the Delhi and Mumbai airports, you’d recall, the technical evaluation was rigged so that just two firms qualified – this new method was meant to stop this from continuing.) So what happened to this? In the case of the highways projects, for instance, it was junked. And, thanks to a minister of whom the less said the better, the great progress made during the NDA years has ground to a halt.

Similarly, when the Railways wanted to build some locomotive and coach factories on its own, it took a long battle to get the Railways to agree to get this done through the PPP route – 74 per cent private, and 26 per cent Railways. Initially, the contracts were completely loaded in favour of the private firms; they were then changed, and loaded in favour of the Railways! With great difficulty, and over a year, the contracts were rescued and brought back to being neutral. The bids were called for and, after a stormy Cabinet meeting, the Railways decided to reject the bid and go ahead and make the engines on its own!

A spanking new Electricity Act was brought into place. This promised a telecom-type revolution. Users like you and I would be allowed to buy electricity from whoever we wanted. So, while the electric wires coming into our houses may have been owned by Reliance Infrastructure, we could ask the Tatas to supply us power – so so many suppliers competing for our custom, as in telecom, prices were supposed to fall. What was the result? In the six years or so that the Act has been in place, there hasn’t been even one instance of a consumer being able to buy power from a third party using what’s called ‘open access’. If you’re a power plant with surplus capacity, and want to sell that power to a third party outside the state, the government doesn’t give you permission to do so – to prevent the electricity from going waste, you then sell the electricity to the government utility in the state, and that utility then sells it outside the state, and pockets the profit. Today, peak power shortages are higher than they’ve been in the past.

As for the airports and the new ports that have been privatised, there’s a new problem. They’re very high cost. In the four new airports, new user charges of around Rs 300 or so for domestic flights is what’s charged and it’s around Rs 1,200 for international flights. In the Nhava Sheva port, a study found users were being charged 80 per cent more! In short, the way the contracts were drawn up and implemented, we’ve got into a very high-cost structure which, in the long run, will kill the industry itself. In the airports, like Delhi, thousands of crore of land has been gifted away almost free to the developer – the Delhi airport has been a long-standing scandal and, if you like, I can give you the urls of some pieces I’ve written on it.

As for the regulators who’re supposed to look after the consumers’ interests, most of these bodies have been captured by bureaucrats and, with perhaps no exception, they’ve, by and large, worked to further the interests of private firms whom the government of the day is in favour of. The corruption is a separate story and, if you’re interested, I’d encourage you to pick up a copy of the latest annual BS Books issue – a chapter called Regulatory Roulette has many of the details.

In a nutshell, as the UPA departs, there’s little to show for the work it has done in the infrastructure space. Which is a real pity since this is one area where the Prime Minister’s closest aide Montek Singh Ahluwalia was personally involved in.

“How much longer sir?” my neighbour, who always seemed to have the Midas touch, asked my father. This neighbour, I have always believed, has the knack of sniffing out business opportunities. He and his wife must have half a dozen streams of income.

He was enquiring about the economic slowdown that has seen everyone tightening their purse strings, and has left him holding his head in his hand and wondering how he would be able to pay his Rs 40,000 EMI on a loan he had raised to build his four storeyed building with five flats. He had hoped to rent them out, preferably to vegetarian IT professionals.

He has waited, waited and waited. His query on the slowdown came in utter frustration over the disappointment that few IT professionals were interested in renting his house or none were ready to pay the rent he wanted. “I have custom-built the house for an IT professional” was his argument. It suits them best. I had heard of custom-built office spaces, but this was the first custom-built house for an IT professional.

What about someone else who may be ready to shell out an amount acceptable to him? No sir, he said, “Others cannot understand how to use the electrical fittings I have spent so much on. Many of the fittings are those you find in the US and many of the IT professionals travel abroad and understand their use.”

“I will wait for a month and visit Tirupathi to ask for the lord’s help.”

Now, he is ready for a compromise it seems. Do people from any other industry have such spending power is what he wants to know now. I have been asked to find out who else could afford the rent and of course still are vegetarians.

A Business Standard editorial piece published today suggests that India’s GDP growth in the fourth quarter of FY2008 will likely be slower than the 5.3 per cent growth recorded in the preceding quarter of the fiscal.

Hang on, there is more bad news.

In his latest column published in ToI’s Sunday edition, Swaminathan S Ankelasaria Aiyar ventured a calculated guess about how long this downturn could last. He wrote:

 “We should expect slowdown to continue for several quarters…We may expect some small improvement in the last quarter of 2009, but a return to a fast growth will have to wait till late 2010, or even 2011.”

Till about a month ago, many analysts were predicting that the Indian economy will be back on track by the first or the second quarter of fiscal 2010. Aiyar says that we may have to wait till 2011.

Even now, even by the most optimistic estimates, customers will not be beating down our doors at the end of three years.

All analysts have admitted at some point or the other that all their upturn-cometh predictions are based on a number of assumptions – like the US economy will show signs of recovery within the next two quarters and India’s fiscal stimulus doses would kick in before the next quarter. Some are also factoring in the emergence of a disruptive force (like rural connectivity through 3G networks) that would do unimaginable things to Indian economy like the Internet did the last time.

Putting all estimates together, it would be safe to say that the Indian economy may see at least three years of sluggish growth before it gains tempo. And that the next two years in particular are going to be painful for everyone concerned in the corporate world.

It will be especially tough for young executives — mostly in their mid-to-late twenties — who have joined corporate workforce in large numbers during the last six to seven years. These executives will see tough and uncertain conditions at workplace perhaps for the first time in their careers.

Estimates say that the slowdown has claimed around 10 lakh jobs across industry sectors since September 2008. And the churn has just begun.

The young executives have gone through the first part of the course correction drill. Lifestyle changes have been brought about – new home and car loans have been put off or cancelled; as for the ones already taken, distress calls to parents have been made; many have applied to management colleges where they could sit out the storm while it lasts.

Those who are still around could face deeper cuts as time passes by.  With every turn of the screw, they will lose some of the baggage accumulated during happy times – best friends will get busy, long time suitors will disappear and quicksilver spouses will vanish. In short, it will not be an easy ride.

Tough as it will be, this will also serve as an introspection time for the first-generation corporate worker. When the new convert will compare his shaky corporate career with the serene vocation of those of his father’s generation – who receive regular, decent hikes in salaries and pensions regardless of the state of the economy – he will be forced to think that there is some merit after all in the largely unenterprising but secure government jobs.

Recent media reports highlight a renewed interest among youth in government vocations.

While all this plays out, some of these first-timers will stick out these tough months, some nervously toiling at one job, others moving from one job to another (if they find them, that is) and some barely scraping through with freelance work and family support. But stick around they would, learning and unlearning things in few years what they would normally take a decade to discover.

All members of this particular tribe will have one trait in common, one reckons. Somewhere down the road, these guys will figure the real reason they want to stick to their line of work for, and will then decide that this particular reason is bigger than everything else they stand to lose during this phase. The rest, as they would tell you later, was easy.

No prizes for guessing who will stand to make the most of new opportunities when the tide turns.

Two things have really bugged me over the week – the fact that the Mumbai airport also wants an Airport Development Fee (ADF) and that the Railways was allowed to go ahead and set up a diesel locomotive factory on its own despite getting a lower quote from a private sector firm. There’s no real link between them except that both make a mockery of the whole system of getting global bids, of transparency, and stuff like that.

Take the Railways case first. I’ve written about this earlier in my column “Getting PPP back on track”. Very briefly, the Railways wanted to set up two factories, one each for diesel and electric locomotives; the tenders moved from the extreme of being very favourable to the bidders to being extremely unfriendly, before they were fixed; there were no bids for the electric loco; there was one bid for the diesel one from General Electric of the US, a bid that was lower than what it would have cost the Railways if it were to build on its own, but the Cabinet allowed it to reject the bid and instead set up the loco factory on its own. In which case, you can expect the usual cost and time overruns that plague all PSU projects – a start has, of course, already been made since the Railway Minister has even decided where the plant is to be set up!

I met a very senior bureaucrat last night, and he put a totally different spin, one that’s even more worrying. He argued that turbines supplied by General Electric to the Dabhol power plant continue to malfunction, and GE is most reluctant to take responsibility for them. While the original Dabhol plant asked GE to give a performance guarantee, when the government entered into a renegotiation and restarted the plant after paying GE and Bechtel around $300 mn for their share of Dabhol’s equity, it did not insist upon a similar guarantee!

The government even brought this matter up with GE’s global chief, but clearly to no avail. So why aren’t we penalising GE, he argued, making it clear that it cannot expect more government business unless it takes responsibility? Why not indeed?

Relate this now to the agreement the US signed recently with Swiss bank UBS. The US has got UBS to agree to give it details of US citizens who’re dodging US taxes using UBS. Why doesn’t our government do something similar, given how Indians are supposed to have stashed away more than a trillion dollars (that’s India’s entire GDP by the way!) in Swiss banks. I mentioned this to another senior bureaucrat, from the finance ministry, at the same party. Since there were other guests around, he loftily told me that the government got all the details it wanted, only these were not publicised the way the US did! If that’s true, how come there’s been no sign of this wealth being taxed? Certainly the tax numbers don’t show this. Once again, a sign that the government just continues to pander to corporate interests.

The best, or worst, example of this of course is what’s happening on the Delhi airport and how this is now to be extended to other airports. The GMR Group won the bid for the Delhi airport by promising to share 49 per cent of topline revenue with the Airports Authority of India (AAI). It was obvious this was going to fail since you can’t share 49 per cent of your topline and still hope to make money, but anyway. Soon enough, GMR redefined what topline was, and came up with a proposal to take deposits which were not going to be shared with the government – to the government’s shame, it okayed this. As a result, the AAI share of revenues fell by 20-50 per cent, depending on what real estate values are. Anyway, given the real estate slump, GMR couldn’t raise enough deposits, so the government has allowed it to charge an Airport Development Fee by charging a few hundred rupees to everyone who flies.

Now other airports, like the one in Mumbai want to levy a similar fee.

Why bother to have agreements if you can just flout them in this manner? Indeed, it’s best to offer to share 99 per cent of revenue, win the contract, and then renegotiate it the way GMR has. After all, if the airport has to be completed, or a road has to be completed, the government will agree to anything.

By the way, this is not some fanciful stuff from the top of my head. In some cases, the Tariff Authority of Major Ports (TAMP) was actually allowing companies to charge their revenue shares as cost! So, let’s say a company’s costs were Rs 80 and if, say a 25 per cent return was to be allowed to it, it would need to earn Rs 100. So, 100 units of cargo were being despatched from the port, it would be allowed to charge Re 1 per unit. Now let’s say it promised to share half of its earning with the government – so, it has to give Rs 50. TAMP, in several cases, assumed the company’s costs were Rs 130, and so allowed it to charge Rs 1.3 per unit of cargo! The company, if it had wanted, could have offered to share 99 per cent of its revenue with government and still not have been out of pocket.

The story’s the same in all cases – the government appears to be run solely/largely by what corporate interests dictate.

Jai ho!