OPINION 13

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Volume XX Number 248

MUMBAI | FRIDAY, 29 JULY 2016

ILLUSTRATION BY BINAY SINHA

Hillarys Everests
Strong endorsement from Mr Obama may help Ms Clinton

illary Clinton has made history by becoming the United States

first woman Presidential nominee. This was never in doubt, despite
junior Vermont Senator Bernie Sanders late challenge and sustained opposition from his loyalists at the Democratic Partys
National Convention in Philadelphia. Now, the bigger question is: Will she
make history as the first woman President of the United States? Till recently, the
unabashed obnoxiousness of her Republican opponent Donald Trumps campaign made that outcome a done deal as well. The prognosis was that most
Americans, outraged at Mr Trumps crassness, would overlook her well-publicised weaknesses a polarising persona, perceived closeness to big business, and
controversies around her actions as Secretary of State to vote her in. Certainly,
Ms Clinton solidly led her opponent in the opinion polls for months. In recent
weeks, this certainty has weakened. Ahead of the Republican Partys National
Convention in Cleveland last week, Ms Clinton and Mr Trump were neck and
neck in the polls. Unexpectedly, and despite the fiasco at Cleveland, Mr Trump
has inched ahead.
This holds disturbing implications about the nature of American public discourse, though the numbers may be linked to Ms Clintons credibility following
the admittedly strange decision of the Federal Bureau of Investigation to exonerate her for a breach of email security as Secretary of State. Still, Mr Trumps wild
xenophobia against Mexicans and Muslims, his cowboy approach to foreign policy, overt sexism and record of questionable business dealings encouraged
Republican Party stalwarts to avoid the convention, and Ted Cruz to avoid
endorsing him. Yet, Mr Trumps outrageously divisive acceptance speech seems
to have resonated with the American public.
The latest polls showed that 24 per cent of voters were undecided, however. Ms Clintons bid to convince them may be helped by the fact that the
Democratic convention has been everything the Republican show wasnt. Mr
Sanders swallowed his chagrin to generously endorse Ms Clinton (though he has
since left the party and reverted to his Independent status). Michelle Obama
demonstrated her innate grace in one of her best speeches, a dignified contrast
to the mannequin-style and part plagiarism of Mrs Trumps speech.
But it is President Barack Obamas 40-minute masterclass in public oratory that could well swing the national mood in Ms Clintons favour. Mr Obama
used the many manifest achievements of his presidency from the economic
turnaround to multiple foreign policy successes to tether Ms Clinton, a rivalturned-colleague, to this impressive legacy. Her choice of Tim Kaine, once a vicepresidential candidate of Mr Obama, has undoubtedly helped. By decisively
demonstrating Mr Trumps dystopian vision as a fallacy and highlighting Ms
Clintons long record of public-service achievements, Mr Obama projected her
as a candidate, who would continue the best traditions of American society. He
also sensibly addressed the questions surrounding her email indiscretions,
suggesting that occasional mistakes were inevitable when people are deeply committed as she is. In short, Mr Obama made Ms Clinton a Presidential candidate
in her own right rather than an alternative to Mr Trump. The election for the 45th
President of the United States is hers to lose.

CAG on coal, again

Govt should take criticism of coal auctions seriously

he Comptroller and Auditor General of India (CAG), in a report tabled

in Parliament on Tuesday, pointed to what it said were inadequacies
in the processes underlying the recent auction of coal block mining
concessions by the government. It is not at the moment being suggested that illegal gains were made. After all, the CAGs remit is merely to audit
the governments account and estimate costs and benefits. Nor is there any other indication at present that illegal gains were being made at the time of the coal
auctions, the way that they were made, according to earlier investigations, by
some parties during the earlier licence-based allocation of coal mines.
Nevertheless, the CAG has asked serious questions about the design of auctions
that should be addressed by the government as soon as possible if it wishes to
continue to insist that the coal auctions were a conspicuous success.
The point of auctions is to ensure wide and transparent competition. In the
case of natural resources such as coal, such auctions should ensure the most efficient use of resources, and also that the government gets the best possible
share of revenue. The CAG, in its report on the first and second round of coal auctions, has thus correctly examined the level of competition that the auctions
brought in, and found it wanting. For this, they pointed to a flawed auction design
in which the standard tender document allowed participation of joint ventures
and simultaneously limited the number of qualified bidders which could participate. As a consequence, in 11 of 29 successful coal auctions in the first two
rounds, there was insufficient competition, as multiple bidders were essentially from the same company. The CAG report also pointed out some flaws in the
calculation of the intrinsic value of a mine, which led to under-valuation of the
mine at the time it was auctioned. Floor prices and upfront payments were correspondingly lower, with a significant cost to the government in terms of lost revenue. This happened in as many as 15 mines.
Again, there is as yet no credible reason to suppose that, in spite of the lost
revenue, any illegal gains were made by anyone, or that the rules favoured any
particular party. However, the history of the coal sector and the degree to which
the previous government was hamstrung by accusations of presumptive losses in the allocation of mines, and associated corruption should cause the government to move quickly to fix any problems. The ministry has already made
the claim that it tweaked the rules to increase competition in the third round of
coal auctions. It must also engage credibly with Parliament and public on the
subject of proper evaluation of intrinsic value, and of criticisms of the auction
process more generally. There is no point in being defensive about existing auction methods; the best way to avoid political blow-back is by being open and
transparent about possible problems and convincing observers that the government will apply any correctives needed. The risks of not doing so are high,
as the United Progressive Alliances eventual fate should make clear.

A world of ice
Given the rise in populism globally, get ready for more fiscal
support, which will lay the ground for inflationary pressures
he great Barton Biggs of Morgan Stanley used
to write about the battle between fire and ice
in describing the alternating concerns in the
minds of investors between inflation and deflation.
In those days, it was not clear whether the forces of
fire and inflation would triumph or those of deflation
and ice. That battle is clearly over, with deflation
the uppermost concern for investors across all
regions. Global bond yields have
dropped to unprecedented levels.
Central banks are being forced into
more and more desperate measures in an attempt to prop up their
respective economies. Trillions of
dollars of sovereign debt now trade
at negative yields across Europe,
Japan and Switzerland. We have
the spectacle of some highly rated
companies being able to raise debt
at almost zero interest rates. It definitely feels as if we are at an AKASH PRAKASH
extreme and that we are likely witnessing the end of a 35-year bond
bull market. Why have rates come
to these levels?
The main challenge facing the world economy is
a shortfall in aggregate demand, or expressed differently, an excess of savings compared to investment. Some of the factors driving this savings/investment gap are as follows.
The financial market meltdown and recession of
2008 has altered consumer preferences in some fundamental ways. Surveys show that less than half of
Americans wished to save more before the crisis, the
latest data show that ratio has risen to more than 66
per cent and continues to rise. Given greater aware-

Yahoo!, a tale of complacency

o, Verizon has agreed to acquire the core interOver time, others came from behind and easily
net operations and real estate assets of Yahoo! overtook it. That it needed to do something about its
for $4.8 billion. After the transaction, Yahoo! business model became evident in the dot-com
will be left with its investment in Alibaba. In 2005, crash of 2000, when Yahoo!'s stock fell as much as
it had bought 40 per cent in the Chinese e-com- 90 per cent. Investors had realised that the internet
merce giant for a billion dollars. In 2014, when space was changing and Yahoo! was unable to keep
Alibaba went public, Yahoo! sold a
pace with it.
chunk of its shares but it still owns
Yahoo! was done in by Google.
a 15 per cent stake, which is valAt one time, Yahoo! had got
ued at around $31 billion. Then,
Google on board to power its
there are investments in Yahoo!
search engine. But, in a very short
Japan and some patents, which
time, Google out-grew Yahoo! and
could be collectively worth around
became the biggest brand in the
$10 billion.
world. Once its search engine was
The money that Verizon has
established, it launched Gmail, a
agreed to pay is a fraction of the
rival to Yahoo mail. There again it
$125 billion valuation Yahoo!
swept the market.
commanded at its peak in 2000.
By the time Yahoo! woke up
In 2008, Microsoft had made an
to the challenge, it had lost preunsolicited offer to buy Yahoo! BHUPESH BHANDARI
cious time.
that valued it at $45 billion. The
YouTube, later acquired by
management wanted more and
Google, showed the great value
thus spurned the offer. The investors were furious. that lay unlocked in the video market. Specialist
Since then, the pioneer of the internet economy news sites gave better feed. All of this pushed Yahoo!
had been on a downward slide. It is a story of into an identity crisis. After a while, nobody knew
missed opportunities and also of failure to evolve what it stood for. It offered a little bit of everything,
with changing times.
but none in a grand way. Yahoo! flirted with severStarting off as a directory of websites, Yahoo! al CEOs. Yet, nobody could fix this basic issue.
was the portal to go to in the mid-1990s. It offered
This further eroded people's perception of the
news, email and a chat room. For a whole generation company. While others had rock-stable manageof people, it was their first internet experience. That ment, which made them look purposeful, Yahoo!
was fine to begin with, but people were bound to ask began to appear like a rudderless ship. While Google
for more. Yahoo! had little new to offer.
flirted with futuristic products like glasses and dri-

WHITE KNIGHT

Indias unofficial apartheid

BOOK REVIEW
ARCHIS MOHAN
At the height of the Babri Masjid-Ram
Janmabhoomi agitation, veteran journalist Saeed Naqvi asked an audience at the
Aligarh Muslim University (AMU), equally divided between Hindus and Muslims,
if any of the Hindus had visited a Muslim
home and whether the Muslims had ever
seen the insides of a Hindu abode. Not a
single hand went up.
Hindus and Muslims have lived in a
state of uninstitutionalized apartheid for
decades, even centuries, he writes in
Being the Other: The Muslim in India, an
engaging autobiography that explores the
continuing marginalisation of Muslims in

India in the post-partition years.

Elsewhere, Mr Naqvi points to how Sir
Syed Ahmed Khan founded the AMU, in
the late 19th century, as a campus only for
the Ashraf or genteel elite the
Sayyids, Pathans and Shaikhs or converts
from Hindu upper castes.
Below the Ashraf were Ajlaf, or the
julahas (weavers), and Arzal, the menial
class. To this day, the AMU claims minority-institution status and does not implement the reservation policy for scheduled
castes, tribes and other backward classes.
Mr Naqvis experience, therefore, is
symptomatic of the ever-widening postPartition divide between the upper castes
of both Hindus and Muslims.
Mr Naqvi writes of innumerable
examples of a composite Hindu-Muslim
culture across India, which survives
among non-upper caste communities of
Hindus and Muslims, but has suffered
among the upper castes with the decline
of a shared Urdu culture of takalluf and

ness of the upcoming pensions and social security crisis, most individuals globally are clear that they have
to take greater responsibility for their retirement and
build their own savings. With the end of the debt
super-cycle, both the willingness and ability of individuals to raise indebtedness is constrained. Even
super low rates are not incentivising individuals to
lever up their personal balance sheets.
The democratisation of credit
during the bubble years, allowing
previously unbanked segments of
the population to borrow and spend,
concealed the huge increase in
income inequality across the globe.
As the International Monetary Fund
(IMF)s research shows, the shift in
income towards the rich has
depressed US aggregate demand by
about three per cent of gross domestic product (GDP). Rising inequality
corrodes consumption.
On the investment side, beyond
short-term headwinds, we have
some longer-term demographic and
business model challenges. Slower labour force
growth reduces the need for work space, both office
and factories, with reduced household formation
lowering the demand for new housing. BCA Research
has estimated that these demographic factors alone
have lowered the equilibrium level of investment in
the US economy by two per cent of GDP and by an
even larger percentage in other advanced economies
with greater demographic challenges.
Lower commodity prices have reduced investment spending in energy, materials and mining.
These sectors accounted for almost a third of global

poetry with the dominance of English.

For this, Mr Naqvi blames the postpartition policies of the soft-Hindutva
Congress governments under Prime
Minister Jawaharlal Nehru. He acknowledges the British fuelled the HinduMuslim divide after the Uprising of 1857,
but points out that Nehru, by not standing up to Hindu right wing elements
within the Congress, and Indira Gandhi
and Rajiv Gandhis unabashed communalism contributed to the destruction of
the Hindu-Muslim syncretism. One
example, Mr Naqvi says, was Nehrus
refusal to mark the centenary of 1857 - an
example of Hindu-Muslim unity possibly in deference to British sentiments.
Meanwhile, the Bharatiya Janata
Party and the Sangh Parivar physically
razed this Ganga-Jamuni tehzeeb built
over a millennia. He points to Atal Bihari
Vajpayees lesser- known speech on the
eve of the razing of Babri Masjid where he
appealed to kar sevaks to level the ground

in Ayodhya.
The author cites the annexation of
Awadh by the British, the Uprising of 1857,
the partition and the abolition of zamindari as four events that broke the back of
the Muslim gentry. He blames Nehru and
Patel for being in a hurry to partition
India because they didnt want to share
power with Muhammad Ali Jinnah, and
knew that the Muslim League leader didnt have long to live.
Mr Naqvi says the two understood
that they could outsmart Jinnah easily,
particularly with the help of Louis
Mountbatten, the last viceroy. Nehru
shared a sparkling rapport with
Mountbatten and his wife Edwina, while
Jinnah wasnt just cold to the man but
refused to appoint him the first Governor
General of Pakistan.
In his book India Wins Freedom,
Maulana Abul Kalam Azad penned with
brutal honesty the duplicity of his colleagues and how the Congress rule that
replaced the Raj wasnt secular but undiluted Hindu Raj.
The Maulana had left instructions that
30-odd pages of his book were to be made

capital spend. Emerging markets (EMs) have been

the other main drivers of investment spend in the
last decade. With the end of the commodity supercycle, lower spend in both EMs and the commodity
sectors are here to stay.
The shift to an intangibles based network driven
economy has also reduced the attractiveness of fixed
investments.
Globally, investment has struggled to keep up
with savings, but arithmetically savings must equal
investments. In an economy, when savings rise but
investments decline, interest rates should fall. Falling
rates will bring the two into balance. The problem
today is that nominal rates are already at record lows,
yet the deflationary pressures are only intensifying.
Rates are still not low enough to bring savings and
investment into balance. This would imply that the
neutral rate (consistent with stable inflation and full
employment) is probably negative in many countries. This is believable, as in the last business cycle
from 2001-2007, real US Federal Reserve funds rates
averaged only one per cent, despite the tailwinds of
the housing bubble and fiscal stimulus of two wars
boosting aggregate demand. This was also a period
when both EMs and Europe were doing well and the
dollar was weakening. Despite all the boosters to
demand and only one per cent real rates, both inflation and the labour market did not overshoot, implying that we were at or near the neutral rate.
Today, with no debt-fuelled consumption bubble,
fiscal contraction and a strong dollar, the economic
reality in the US, and more broadly across most of the
OECD, is very different. If a one per cent real rate was
appropriate in the last cycle with all the consumption
boosters, what is an appropriate rate today? It is probably zero, if not negative. If zero, then nominal rates
will be around 1.5 per cent, the current level in the US.
We may be in less of a bond bubble then the public
thinks, these rates may actually be appropriate.
If the neutral rate is so low in the US, it will be
even lower in Europe and Japan, given the weaker
demographics, higher debt burden and institutional weaknesses. You may need negative nominal rates
in parts of the European Union and Japan to get to
the equilibrium rate. By this line of reasoning, what
we are seeing on yields is fairly rational and needed.
Yields in negative territory are the only path to recovery for these economies.
The question investors have to ponder is what
next? When an economy is unable to recover even
when rates are at zero, what can policymakers do?
The easy, maybe academic, option is do nothing.
Throw in the towel, say we have no tools left and let
the economy contract. An economic contraction
will automatically reduce savings and realign the
savings/ investment mismatch.
Given the rise in populism globally, it is unlikely that any politician will be willing to accept an
economic contraction. The population is unwilling
to accept any more economic pain. Get ready for
more fiscal support, it is inevitable and coming.
This pursuit of expansionary fiscal policies will
eventually lay the ground for the re-emergence of
inflationary pressures.
With low yields likely to remain for the foreseeable future, the chances of a melt-up in equity markets continue. Given where valuations are in the US
today, money will eventually rotate into EMs. The
first signs of this are visible. This is a liquidity driven rally and thus impossible to call.
The writer is at Amansa Capital. These views are his own

verless cars, which gave it the aura of a great technology innovator, Yahoo! seemed to be stuck in a
time warp. Each CEO tried to tweak the offering, but
nothing could stem the tide.
The costliest mistake that Yahoo! made was not
boarding the social media bus. Advertisers loved the
social media because of the engagement it was able
to create. Yet, Yahoo! had nothing to show.
Actually, Yahoo! had the opportunities to
expand its search and social media offerings, but
it squandered those opportunities. These must be
counted as the biggest mistakes in the history of
the corporate world. In 2000, Yahoo! had discussed
buying Google from its promoters, Larry Page and
Sergey Brin, for $1 billion but couldn't close
the deal.
In 2004, Yahoo! had initiated talks with Mark
Zuckerberg to buy out his social media venture,
Facebook, for a billion dollars, and again the talks
fell through. Both these investments would have
taken Yahoo! way ahead of its rivals.
The story of Yahoo! is reminiscent of the Indian
business families which failed to change with the
times and were thus pushed into oblivion.
Complacency, in both the cases, was the culprit.
The important question is what does Verizon, a
telecommunications company, intend to do with
Yahoo! It is more or less understood that it will push
Yahoo! content to its subscribers along with AOL
properties like The Huffington Post, TechCrunch
and Engadget, which it had acquired last year.
But Verizon will have to think of ways to
improve what Yahoo! has to offer. Or else, it will fail
to create an impact. Unfortunately, the internet
space can be very unforgiving. The past matters little. Consumers switch off a website at the first
sign of boredom.

public after Nehru and he were dead. Mr

Naqvi bemoans that these pages, when
made public in 1988, invited motivated
criticism but did not inspire the extended debate, which deserved. It is likely
that neither would Mr Naqvis book.
Mr Naqvi traces the genesis of several
other contentious issues, including how
the British effectively used cow slaughter
to sow the seeds of Hindu-Muslim discord, the invasion of Hyderabad by
Indian forces and also the mess that
Nehru and Patel created with Kashmir.
The author says he views the HinduMuslim problem as a triangle: IndiaPakistan, New Delhi-Srinagar, HinduMuslim being one set of issues and three
sides to the triangle. It is a law of triangles that if one line, or angle, is addressed,
the other two will be correspondingly
affected, he says, noting how Mr
Vajpayee was receptive to his formulation
and during his Lahore bus journey asked
whether Mr Naqvi thought one line of the
triangle has been addressed by the visit.
Mr Naqvi says the realisation that he
was part of the other came late in the
day, in 1990, when Vinod Mehta, editor

and his friend of 60 years beginning with

school, asked him to write a column for
his magazine from a Muslim perspective. The author says he glared at Mehta
but understood that if India were to keep
up the pretence of secularism, and equality, it needed the other, but such people
were in short supply.
As for the future, Mr Naqvi isnt optimistic. The socio-economic condition of
the common Muslim, as the Sachar
Committee report highlighted, is pitiable.
He says a poor Brahmin because of his
caste network could still feel secure. The
continuing churning among caste groups
will help them find new levels of empowerment. Mr Naqvi says the Muslim is likely to be kept below the churning by his
clerical leadership, which strikes bargains
with the political class and keeps the
community mired in religion.

BEING THE OTHER

The Muslim in India
Saeed Naqvi
Aleph
239 pages; ~599