#283 History Makers

Taking Stock of 2024 Predictions, Honouring India's Great Sons, and American Policy Self-goals—US Steel Version.

Happy New Year

— RSJ

Happy 2025, dear readers.

2024 and everything good and bad that it brought is behind us. May the new year be filled with hope, happiness and prosperity for all of you. We had a boring, normal 2024 ourselves. Pranay had a wonderful book - We, the Citizens - out during the year, which you must buy if you haven’t. The newsletter kept chugging along (we did the usual 44 editions during the year), as did the world around us despite the occasional minor threats of a third world war.

The usual way for me to begin the opening edition of any year is to look back at the predictions I had made for the year gone by and how I fared. I will follow that tradition this year too. But before I do that, there are a few homages to pay. India lost three extraordinary personalities in the last fortnight of 2024. For me, a child of India of the late 80s and 90s, these losses were personal.

Shyam Benegal arrived on the Hindi film scene when the genre of ‘masala’ Bollywood movies was taking root. Through the 80s and 90s, Benegal resolutely carved his own path in parallel to the mainstream. He was hardworking and prolific, meaning there was a Benegal film every other year. He discovered talent and nurtured them. The finest of acting talent in India in the past half a century is a product of the Benegal school—Naseeruddin Shah, Shabana Azmi, Om Puri, Smitha Patil, Amrish Puri, Girish Karnad, Anant Nag—the list is endless.

It wasn’t the actors alone. The list of technicians who were part of Team Benegal is longer and perhaps more impressive. Govind Nihalani, Ashok Mehta, Satyadev Dubey, Vanaraj Bhatia—people tremendous in their craft who would make a name for themselves.

Benegal films and his equally seminal work for television came to me through Doordarshan, the state-run monopoly that was my only window to the world outside. He was the most Indian of directors dealing with subjects from the lives around us in a cinematic language that was spare, real, but always accessible. Feudal oppression in villages (Ankur), casteism (Nishant), sexual violence (Mandi), co-operative movement (Manthan), history of India (Bharat Ek Khoj, Junoon), license raj (Kalyug), early Indian cinema (Bhumika), the lost art of storytelling (Suraj Ka Satwaan Ghoda), partition (Mammo), royalty (Zubaida), Gandhi (The Making of Mahatma), railway travel (Yatra), Constitution (Samvidhan), elections (Welcome to Sajjanpur), Bose—the range of his work is mind-boggling. He was my window to how ordinary Indians lived and breathed. His films examined our society and how we came to be the way we were in a manner that was both meaningful and entertaining. Those films are among the most clear-eyed documentation of India of the past hundred years. There are public policy lessons galore in them. He was an institution. Quite literally for me.

In edition #26, I had this to say about Benegal’s Kalyug.

“There are many Rajs in Shyam Benegal’s criminally underrated Kalyug (1981), a modern adaptation of Mahabharat set in the Mumbai corporate world of the late 70s. There’s a detached Raj Babbar as Dharam Raj (Yudhisthira) with a weakness for racehorses, a pugnacious Kulbhushan Kharbanda as Bal Raj (Bhima), the delightful Anant Nag as Bharat Raj (Arjuna) and, a seething but understated Victor Banerjee as Dhan Raj (Duryodhana). But the real scene-stealer on whose machinations the story pivots is a different Raj.

It is the License Permit Raj.

Losing out on a license kicks off a trail of internecine strife that consumes everyone in Kalyug. It turns out to be the most powerful Raj of them all.

Apart from a stellar cast, Benegal and Shashi Kapoor (as producer) orchestrated the coming together of some the finest talents to have graced Hindi cinema in Kalyug – Girish Karnad (story and screenplay), Satyadev Dubey (dialogue), Vanraj Bhatia (music), Kersi Lord (conductor) and Bhanudas Diwakar (editing). One of the great pleasures of watching modern adaptations is to connect characters and events to the original text. Kalyug doesn’t disappoint with key plot points reinterpreting the great events of the epic often in oblique avant garde manner.

Kalyug has one key character missing though. The one who instigates and poisons the mind of Duryodhana in the original epic. The one who starts the chain of events leading to the great war. Benegal didn’t need a character to play Shakuni. The license-permit-quota Raj of the state filled in more than adequately.”

RIP, Shyam Babu.

We also lost Zakir Hussain in this period. Zakir was a tabla maestro, an Ustaad, in the real meaning of that term. But he was much more. To us, growing up, he was an electric presence on screen and stage who blended the traditional and the modern India within him. He was equally at ease in a jugalbandi with Hariprasad Chaurasia as he jammed with the Grateful Dead or was the beating heart of the Mahavishnu Orchestra and Shakti. He stood for the India that we often espouse for in these pages - self-confident, rooted in tradition and open to the world. Shruti Rajagopalan has this beautiful piece that captures the essence of Zakir Hussain and what he meant to so many of us. Gone too soon.

Going back to that old edition that spoke of Kalyug and License Raj, here’s another extract from it:

“Our obsession with import substitution (a topic for another day), running inefficient and loss-making PSUs, a lack of fiscal discipline, keeping the rupee overvalued and a dependence on oil imports meant a balance of payment crisis was brewing all through the 1980s. Things came to a head in 1991 when we had only 3 weeks of forex reserves remaining for critical imports and we had to physically pledge our entire gold reserves to survive. Then, Manmohan Singh made that famous budget speech on July 24, 1991 and changed India. The Raj was dismantled.”

That dismantler of license raj too passed away in the last week of December 2024. A lot has been written about Dr. Manmohan Singh. And there’s good quality documentation of the 1991 reforms that has been done in the past few years. Those reforms weren’t an overnight effort. There wasn’t a single individual who led those reforms. It took time, possibly a decade or more, for those initial reforms to play out in terms of impact. Yet, I’m convinced if the face of those reforms wasn’t a gentle, soft-spoken, erudite Sardar who rose from poverty and the horrors of partition to walk the halls of Oxbridge colleges and the United Nations as a scholar economist, it wouldn’t have been as successful. He changed our lives. He changed mine for sure. He was quite prescient when he remarked at the end of his prime ministerial tenure that history would judge him more kindly.

He was a hero of our time. He was hero of mine.

Onwards to how I fared on my ten 2024 predictions. I have edited the predictions to keep them concise.

#1: President Biden will decide sometime in early February that he cannot lead the Democratic Party to power in the 2024 elections. He will opt out of the race and give possibly the most well-backed Democrat, financially and otherwise, a really short window of four months to clinch the nomination…..Who will emerge from this is anyone’s guess. But whoever it might be, if (and it is a big if) they have to come up against Trump, they will lose. To me, the only way Trump doesn’t become the next President is if he isn’t on the ballot. And the only way that looks possible is if he loses his legal battles. Otherwise, you will see a second Trump term which will be worse than the first one.

Biden should have stepped down in February if he wanted his party to have a fighting chance. He did it instead in July, and the Democrats’ goose was well and truly cooked. Trump, as I predicted, would have won regardless of who Democrats put up. The only point of discussion was the margin of the victory.

#2: There’s way too much confidence about the Fed having piloted a ‘safe landing’ for the US economy despite the many odds that were stacked against it. I think this is fundamentally misplaced. The fiscal deficit is unsustainable, and much of the soft landing is thanks to it… My view is that the real landing will be in 2024, and it won’t be soft.

I got that wrong. The deficit continued to balloon, and the Fed did cut rates at the back end of the year a bit too aggressively, but the hard landing didn’t come. It is only a postponement in my view because this level of deficit isn’t sustainable.

#3: China will get more adventurous geopolitically as it weakens economically. There will be more fiscal support to prop up the numbers and more packages for sectors in stress. Foreign inflow will continue to be anaemic, though it won’t be negative, as it turned out late last year. The Chinese customers' long-awaited consumption spree isn’t coming in 2024. All in all, China will stutter while still wowing the world with its progress in tech.

Pretty much spot on, including a predicted fiscal package. China did wow the world with the progress it continues to make in green tech and, increasingly, in AI and quantum computing. None of it will help with the immediate problems of low demand, high debt, and a deflating economy.

#4: BJP will come back to power, but it will fall a bit short of 300 seats. This will surprise many, considering the continued electoral success of its machinery and all the Ram Mandir ballast it plans for itself from this month onwards… All of this will mean a decline in 30-40 seats across the board. The new Modi cabinet will be a surprise with new Finance and Defence ministers and a whole host of new faces as it goes for a generational change in leadership.

Well, my prediction was that the BJP would end up with about 260-270 seats. They fared worse and ended up at 242. But broadly, I was right when I predicted this back in the first week of January 2024. The surprising underperformance stopped PM Modi from ushering in the generational change in the cabinet. I expect it to happen in 2025-26.

#5: The somewhat surprising trend of record US deficit going hand-in-hand with the relatively strong showing of the dollar in the past two years will eventually come to a face-off. And my guess is 2024 is when the dollar will blink….But a dollar slide looks inevitable to me.

As I write this, the Dollar is at a two-year high. I got this completely wrong.

#6: I had predicted a more aggressive anti-trust stance and significant moves against Big Tech by the FTC. It didn’t pan out. So, I will repeat the prediction. Lina Khan, the FTC Commissioner, has a nine-month window to go after them, after which it isn’t certain she will continue to be in her post. I predict a big scalp during this time, which will then be legally challenged. But expect a tough couple of quarters as she and her team do their best to leave a mark for the future.

She didn’t scalp a really big one but FTC did make life of Big Tech more difficult in 2024. And there was the FTC's landmark antitrust case against Google, where the federal judge called out Google for abusing its dominant position in the search business. At the end of the year, the FTC blocked the mega-merger between grocery chain Kroger and Albertsons for reasons I’m still trying to understand.

#7: The Indian economy will continue its trend of surprising on the upside, though I think global headwinds will temper the overall growth. I expect a 6.5 per cent growth with the inflation at the 4.5 per cent mark through the year. I expect FII inflow to be among the lowest in many years in 2024, and much of the equity market will be buoyed by domestic fund inflow into the market. The Nifty will remain flat or be up 5 per cent….

Pretty much on target of 6,5 per cent growth, but inflation was closer to 5 per cent for the full year. Net FII inflow was the lowest in many years, and Nifty was up by 8.5 per cent. Not great, but not bad either.

#8: The Israel-Hamas war will end faster than people think. Not because there will be some solution agreed between the parties. There’s nobody to fight any more in Gaza. The Hezbollah won’t get involved, and the Houthi insurgency will be a mere storm in the teacup. On the other hand, the Ukraine war will continue with no real end in sight during the year.

That’s how it went. No real fighting has been going on in Gaza for more than six months now. The Hezbollah leadership has been decimated, and Iran is licking its wounds. The Russia-Ukraine war is a battle of attrition that’s ongoing, and it will take a Trump-Putin summit to settle.

#9 Two specific corporate predictions: One, AI will continue to impress us with its capabilities without making a dent in real business. So expect to be surprised by a best seller written by an unknown author that will later be revealed to be an AI-trained algorithm. Two, I think Novo Nordisk will be well on its way to becoming the most valued company in the world in 2024.

Both didn’t happen. Novo Nordisk fell through the year after hitting a high in March. Nvidia was the real story.

#10: I predict one of two contentious pieces of legislation will come into play after the elections are over. We will see a real move on either the Uniform Civil Code or on one-nation one-election (ONOE) at the back end of the year. These are issues close to this government; they will get these going right after the elections.

Well, this is precisely what happened with ONOE. So that went exactly as predicted.

Overall, the prediction scorecard is about 6/10 or maybe 7/10 if I were being generous.

On to 2025 predictions in the next edition. Happy New Year once again.

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India Policy Watch: “In Dealing With the Affairs of the State one Should be Full of Sentiment but Never be Sentimental”

Insights on current policy issues in India

— Pranay Kotasthane

Just as India’s independence was the defining macro-event of people from my grandfather’s generation, the 1991 economic independence was the defining macro-event of my generation.

Some still consider the 1991 reforms a high-falutin change that only impacted a few wealthy people. But if you ponder hard enough, you’ll realise that these reforms had a long-lasting impact on all of us.

I was six years old when the reforms happened. At the time, my Dad worked as a laboratory chemist in a private fertiliser company’s office in Indore. The reforms had a profound impact on us. By 1991, the fertiliser subsidy had grown to be the single-largest in the government budget. That’s because the prices of fertilisers were controlled, and since July 1981, there had been a zero per cent increase in fertiliser prices even as the government kept increasing crop procurement prices. As a result, the government’s fertiliser subsidy bill kept ballooning. This subsidy was paid to fertiliser companies according to the government’s whim. With the fiscal crisis approaching, there was a real threat that the government could default on these payments. All companies hunkered down.

The 1991 reforms didn’t dismantle this regime but introduced some significant changes. The government raised fertiliser prices by 40 per cent on average (later reduced to 30 per cent) and introduced a ceiling on the subsidy paid on certain phosphate fertilisers. At the same time, the reduced licensing requirements made it easier for companies to expand production capacity and modernise facilities. The gradual reduction in import duties on raw materials like phosphoric acid helped fertiliser producers access key inputs at better prices.

The increase in fertiliser prices initially led to a reduced demand, leading companies to consolidate. The laboratory where my Dad worked was closed down in 1992. At the same time, a reduction in licensing requirements allowed the company to focus on expanding its manufacturing facility in Goa. So, my Dad was asked to move to Goa—a place he and the family had zero idea about. My parents took the chance. I count this move to a new place with a diverse, liberal culture as the best thing that could have happened to the seven-year-old me and my younger sibling. Soon after the licensing requirements were dismantled, the company’s sales turnover increased. By 1994-95, it had doubled its capital deployment. The profits increased. Personally, all this meant that my Dad had a stable job at that company for over three decades, allowing my parents to invest in our education and helping us become responsible citizens.

The 1991 reforms were deeply personal. Like my story, I’m sure they intersect with your life trajectories. We must thank many reformers who played their part in steering the Indian economy away from rotten socialism, none more than Dr Manmohan Singh. Without him, India would have settled for some lame debt restructuring programme of the kind that Pakistan routinely does to this day. The political support for using the crisis to overhaul India’s economy was weak, even within the ruling party. Had it not been for his conviction, expertise, and advocacy, the crisis would have gone to waste—as it often does.

I think the best tribute to him is reading through his speeches and responses in the parliament between 1991 and 1995. Thankfully, the Parliament’s Digital Library Project has made it easier to locate these discussions. Let me point to a few highlights.

His combative response in the Rajya Sabha terming the opposition to rupee devaluation as anti-national:

Let me say that in this country there seems to be a strange conspiracy between the extreme left and extreme right that there is something immoral or dishonourable about changing the exchange rate. But that is not the tradition. If you look at the whole history of India’s independence struggle before 1947 all our national leaders were fighting against the British against keeping the exchange rate of the Rupee unduly high. Why did the British keep the exchange rate of the Rupee unduly high? It was because they wanted this country to remain backward and they did not want this country to industrialise. They wanted the country to be an exporter of primary products against which all Indian economists protested. If you look at Indian history right from 1900 onwards to 1947, this was a recurrent plea of all Indian economists—not to have an exchange rate which is so high that Indian cannot export, that India cannot industrialise. But I am really surprised that something which is meant to increase the country’s exports and encourage its industrialisation is now considered as something anti-national.

The legendary lines that ended the 1991 Budget speech:

I have now nearly come to the end of my labour. Before I conclude, let me end on a personal note. Years ago, in a letter which Jawaharlal Nehru wrote to the young Indira Gandhi, he advised her that in dealing with the affairs of the State one should be full of sentiment but never be sentimental. But the House will forgive me if on an occasion like this I cannot avoid being somewhat sentimental.

I was born in a poor family in a chronically drought prone village which is now part of Pakistan. University scholarships and grants made it possible for me to go to college in India as well as in England. This country has honoured me by appointing me to some of the most important public offices of our sovereign Republic. This is a debt which I can never be able to fully repay. The best I can do is to pledge myself to serve our country with utmost sincerity and dedication. This I promise to the House. A Finance Minister has to be hard-headed. This I shall endeavour to be. I shall be firm when it comes to defending the interests of this nation. But I promise that in dealing with the people of India I shall be soft-hearted. I shall not in any way renege on our nation’s firm and irrevocable commitment to the pursuit of equity and social justice. I shall never forget that ultimately all economic processes are meant to serve the interests of our people. It is only through a commitment to social justice and the pursuit of excellence that we can mobilise the collective will of our people for development, to give it a high moral purpose and to keep alive the spirit of national solidarity. The massive social and economic reforms needed to remove the scourge of poverty, ignorance and disease can succeed only if backed by a spirit of high idealism, self sacrifice and dedication.

The grave economic crisis now facing our country requires determined action on the part of Government. We are fully prepared for that role. Our party will provide an effective Government to our country. Our people are our masters. We see the role of our Government as one of empowering our people to realize their full potential. This budget constitutes a vital component of a comprehensive vision, a well thought out strategy and an effective action programme designed to get India moving once again.

Sir, I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, “no power on earth can stop an idea whose time has come.” I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.

With these words, I commend the budget to this august House.

And the emotional lines at the end of the 1992 Budget Speech:

Our nation will remain eternally grateful to Jawaharlal Nehru for his vision and insistence that the social and economic transformation of India had to take place in the framework of an open society, committed to parliamentary democracy and the rule of law. India’s development is of tremendous significance to the future of the developing world. To realise our development potential, we have to unshackle the human spirit of creativity, idealism, adventure and enterprise that our people possess in abundant measure. We have to harness all our latent resources for a second industrial revolution and a second agricultural revolution. Our economy, polity and society have to be extraordinarily resilient and alert if we are to take full advantage of the opportunities and to minimise the risks associated with the increasing globalisation of economic processes. We have to accept the need for restructuring and reform if we are to avoid an increasing marginalisation of India in the evolving world economy. The economic policy changes brought about by our Government under the inspiring leadership of Prime Minister Narasimha Rao in the last eight months are inspired by this vision. Our party is an inheritor of great traditions of national service. True to this heritage, we commit ourselves to providing a firm and purposeful sense of direction to the reform process so that this ancient land of India regains its glory and rightful place in the comity of nations. This budget represents a contribution to the successful implementation of this great national enterprise, of building an India free from the fear of war, want and exploitation, an India worthy of the dreams of the founding fathers of our republic. We shall pay any price, bear any burden, make any sacrifice to realise these dreams. India is on the move again. We shall make the future happen.

Sir, I have come to the end of my labour. Tonight, I feel like going to the theatre. Let the assassins be informed, I am prepared to meet their onslaught.

As a poet says, “Sarphiroshi Ki tamanna ab hamare dil main hai, Dekhna hai zor kitna baazu-e-qaatil mein hai”.

Sir, I commend the Budget to this August House.

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Global Policy Watch: Steeling Down

Insights on global issues relevant to India

— Pranay Kotasthane

Over the last two editions, I’ve been trying to make sense of American policy self-goals. I argued that the US is deploying the same policy instruments that one would typically associate with China. In doing so, it’s playing to the adversary’s strengths instead of its own.

As if to dig a deeper hole for itself, the American president blocked Nippon Steel’s acquisition of U. S. Steel earlier this week, citing vague national security concerns. In his words:

We need major U.S. companies representing the major share of US steelmaking capacity to keep leading the fight on behalf of America’s national interests. As a committee of national security and trade experts across the executive branch determined, this acquisition would place one of America’s largest steel producers under foreign control and create risk for our national security and our critical supply chains.

So, that is why I am taking action to block this deal. It is my solemn responsibility as President to ensure that, now and long into the future, America has a strong domestically owned and operated steel industry that can continue to power our national sources of strength at home and abroad; and it is a fulfillment of that responsibility to block foreign ownership of this vital American company. U.S. Steel will remain a proud American company – one that’s American-owned, American-operated, by American union steelworkers – the best in the world.

Further, there seems to be a bipartisan consensus on this issue. President-elect Trump had also made clear his opposition to the deal. In other words, the US believes it’s alright to block a Japanese company from investing in a commodity firm on national security grounds.

Observe the geopolitical signals that this move sends.

First, this is the first time that the Committee on Foreign Investment in the United States (CFIUS) has blocked a deal that does not have Chinese ownership issues. Blocking a company from a friendly country on ill-explained national security grounds marks a disturbing change in America’s geoeconomic approach. Hitherto, the stated approach of the US towards China was termed “small yard, high fence”, meaning that in a narrow set of advanced technologies, Chinese firms will be resisted with the full force of the American State. In other areas, the approach will be business-as-usual. By blocking a takeover from a company of an ally country, the government has adopted a “huge yard, very high fence” approach instead. This will have a chilling effect on partner countries.

The second issue concerns the product at hand—steel. To raise the national security red flag for an industrial-age product with multiple global suppliers seems comical and anachronistic. U.S. Steel is the third-largest steel producer in the US. The Department of Defense (DoD) purchases zero per cent of its output. In fact, the Pentagon’s demand accounts for less than 1 per cent of the entire American steel industry’s output. Thus, it is difficult to understand how this acquisition would have adversely impacted American national security.

The third—and perhaps the most important issue from an Indian perspective—is what this move reveals about the American state of mind. It strengthens the narrative that recent American governments seem to be acting against all America has stood for. Instead of chutzpah and boldness, the move symbolises fear, defensiveness, and nervousness. Not a good signal to send to your partners and allies.

What’s also concerning is that despite abundant knowledge and state capacity, the US seems to be making such policy blunders. In this case, too, most mainstream think tanks across the board were supportive of the acquisition. And yet, the government thought otherwise. There seems to be a major flaw in the American policy pipeline.

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HomeWork

Reading and listening recommendations on public policy matters

1. [Article] Of all the tributes to Dr Manmohan Singh, this one by Mihir Sharma in the Business Standard is probably the best. Not only does it memorialise Dr Singh appropriately, but it also inspires public policy professionals in equal measure.

2. [Articles 1 & 2] Check out these two excellent explainers by Scott Lincicome and Sarah Bauerle Danzman on the US Steel fiasco.

3. [Podcast] Check out the Puliyabaazi with Jairam Ramesh discussing the 1991 reforms.

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