How to apologise without saying sorry

Apologising is never easy. Barack Obama knows this now. He made a non-apology apology last week to a Massachusetts police sergeant two days after saying the officer “acted stupidly” in arresting Harvard professor Henry Louis Gates Jr because he was trying to break into his own house.

Obama’s decision to wade into a local issue involving an African-American friend triggered a worldwide debate on race and the U.S. criminal justice system. The Cambridge Police Department dropped a charge of disorderly conduct against Gates and said the incident was “regrettable and unfortunate”, but demanded that Obama himself apologise and in an unusually direct rebuke said the president had used the right words but at the wrong party.

It was ironic that Gates should be involved in a racial row. When football star O.J. Simpson was acquitted of the charge of killing his estranged wife Nicole and her friend in 1995, Gates published a brilliant and critical analysis, “Thirteen Ways of Looking at a Black Man” in The New Yorker. “Many blacks as well as whites saw the trial’s outcome as a grim enactment of Richard Pryor’s comic rejoinder ‘Who are you going to believe — me, or your lying eyes?’” Gates wrote.

Not forgetting that Rupert Murdoch had to apologise to the victims’ families for planning to publish O.J. Simpson’s If I Did It.

But Obama, who shot into national consciousness with his carefully choreographed “colourless” campaign and was hailed as ushering in a new, post-racial United States, had to interrupt a White House press briefing on Friday to offer the kind of mea culpa that his wordmeisters must have sweated bucketfuls over.

Obama said he could have “calibrated those words differently”. Then he said:

“My sense is you've got two good people in a circumstance in which neither of them were able to resolve the incident in the way that it should have been resolved and the way they would have liked it to be resolved.”

It sounded like Obama had studied the same primer as Rita Bahuguna Joshi, who said after sledging Mayawati: “"I regret what I said in a fit of anger. If it is being misconstrued, if it's being misinterpreted, it is being taken out of context, then I regret it.”

Apparently Obama decided to “apologise” to Sergeant Jim Crowley after talking the matter over with his wife Michelle. The president has quite a few other things to mull over. His honeymoon is definitely over. A Zogby poll last week put Obama’s approval rating at 48%; 51% of those polled felt the U.S. was “on the wrong track”. This, pollster John Zogby noted, was about where George W. Bush was with voters just before the 9/11 attacks. A CBS News Poll put Obama’s approval rating at 57% -- down from 68% in April. The good news is that another CBS poll said more blacks in the U.S. – 59% felt that race relations have improved, up sharply from 29% in July 2008.

The bad news is that 43% of blacks believe they are stopped by police because of their race. DBW – Driving While Black – is not a nice place to be, even if you are driving an expensive BMW.

So on a range of issues – healthcare reform, the way the huge stimulus package is being spent, the backtracking on Guantanamo, the growing “surge” in Afghanistan – Obama is not coming through as a blazing reformer with a flaming sword.

Actually he is having a fairly easy time of apologising. His predecessor spent his first few months in the White House feeling regretful.

Very early in his first term, Bush had to apologise personally to the Japanese prime minister after a U.S. nuclear submarine smashed into a Japanese fishing vessel carrying schoolchildren off Hawaii, killing nine of them.

A few weeks later, a U.S spy plane with 24 crew members force-landed on China’s Hainan island after colliding with a Chinese fighter jet. The Americans sent a repatriation team to bring back the crew after an 11-day standoff, and said they were “very sorry” that the Chinese pilot had died in the collision.

You would think that after Vietnam, Cambodia and Watergate, Americans had had a lot of practice in deniability.

Ten years ago NATO planes bombed the Chinese embassy in Belgrade. China’s People’s Daily commented scornfully this May that the incident had been shrugged off by the U.S. as a “mistaken bombing”. “Taking into account that this event is a page already turned in history, the alertness and latent hostility that the U.S. holds towards China seems not to have vanished.”

Six years into its occupation of Iraq, we are only just beginning to hear a little less about the collateral damage of teenaged U.S. soldiers shooting dead civilians who did not slow down near checkpoints. We don’t hear apologies either about the civilian deaths caused along the Afghanistan-Pakistan border by unmanned drone bombings. The UN High Commissioner for Refugees said in April that 546,000 people have registered as refugees, forced to flee their homes by the relentless bombing.

Back to the art of apology. The Japanese used to have it down pat. Their language is peppered with apologetic phrases. Every time somebody brushed against me in an impossibly crowded Tokyo subway train both of us would mutter gomen nasai – forgive me. And Indians did not invent anticipatory bail – the Japanese routinely say shitsurei shimasu, “excuse me for what I am about to do”. But the coinage has got a little debased recently.

Much was made last year when Howard Stringer, the CEO of Sony, did not apologise personally for a series of mishaps in which Sony’s lithium-ion batteries caused laptops to burst into flames.

Observers noted that a lower-ranking Sony official bowed from a sitting position while apologising for the overheating batteries, of which Sony eventually had to recall 9.6 million.

In contrast, Citigroup’s former CEO Chuck Prince, apologising for problems that led to the closure of the banking giant’s Japanese private banking licence, stood up and bowed for a full seven seconds. Leslie Gaines-Ross, chief reputation strategist for Weber Shandwick, writes in Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation that CEOs need to follow three important steps when apologising: take responsibility, act quickly, and communicate sincerity.

Japan’s Prime Minister Taro Aso was tearful last week when he announced early elections and the dissolution of the Lower House. "My wavering remarks caused anxiety and distrust in the public and led to a fall in the party support rate," Aso was quoted by Kyodo as saying at the start of his speech. "I'm deeply repentant."

Apparently Aso had planned to apologise in the middle of his speech but his Chief Cabinet Secretary advised him to start off with an apology. In May, Ichiro Ozawa resigned in tears as president of the main opposition party over a political funding scandal.

Maybe Obama’s wordsmiths need to get together with Manmohan Singh’s to craft a non-apology apology for the Sharm el-Sheikh joint statement. Or maybe our diplomats and ministers just need to tear up a bit.

(This piece appeared in the Business Standard of July 31, 2009)

The government's fiscal profligacy has made a mockery of the FRBM Act

Pranab Mukherjee sounded pleased earlier this week when he told a TV interviewer that India’s projected fiscal deficit of 6.8 per cent of GDP in 2009-10 was still better than the 11 per cent projected in the United States. He did not mention the difference in the two countries’ GDPs, and he was not cross-examined about India’s budgeting process, which is in the grip of multiple sclerosis. This ailment is characterised, the dictionary tells us, by “inability to coordinate movements, blurring of vision and an abnormal tingling sensation”.

The abnormal tingling was evident in last Monday’s precipitous fall in the Sensex, which rocketed 52.57 per cent between January 1 and June 30 this year. In itself, that was aberrational behaviour considering that market capitalisation has fallen from a peak of about 140 per cent of GDP in December 2007 to 50 per cent of GDP in February 2009, as the Asian Development Bank (ADB) has noted. In comparison, the Dow Jones Industrial Average has actually fallen from 9,034 on January 1 to 8,447 on June 30, and the Americans know they are not out of the woods.

The warning bells are ringing loudly. Rating agencies have put India on notice for downgrades; Standard and Poor’s cut India’s long-term sovereign debt outlook to “negative” from “stable”. The ADB warned that fiscal stimuli can only have a short-term impact. “At a time of falling business confidence, expansionary fiscal policies could impair the confidence of investors unless clear signals are given that the present large deficits are truly temporary. General government debt is estimated to be 80.7 per cent of GDP (at end-March 2009), indicating little room for fiscal manoeuvre.”

The UPA government’s fiscal profligacy, abetted by the Reserve Bank of India (RBI), has made a mockery of the Fiscal Responsibility and Budget Management Act (FRBMA), which requires the government to cap fiscal deficit at 3 per cent of GDP and eliminate revenue deficit. The finance ministry acknowledges that the discipline imposed by the FRBMA enables the state to channel huge new funding into social-sector spending. The difference this time is that reckless spending has ballooned and lawmakers have become lawbreakers. The Economic Survey noted that the government’s fiscal stimulus, including higher salary payouts to state employees after the Sixth Pay Commission report, equalled 3.5 per cent of GDP last year.

How are government policies hurting business, manufacturing and capital formation? There are some clues in recent reports. The government plans to borrow Rs 400,000 crore from the market this year. RBI noted in its April policy statement that the combined central and state fiscal deficits, plus special securities issued by the Centre outside the market borrowing programme, would take the nation’s fiscal deficit to 10.8 per cent of GDP.

This means that private-sector borrowers will be crowded out of the market by the government-central bank behemoth. The gloom in the corporate sector is reflected in the National Council for Applied Economic Research’s (NCAER’s) Business Confidence Index, which declined to 81.9 at end-March, a 45 per cent plunge from 148.7 a year earlier and the lowest since October 2001.

Industrial production slowed very sharply to 2.4 per cent in 2008-09 from 8.5 per cent a year earlier. Exports and imports both declined; trade deficit soared 35 per cent to $119 billion. Exports in April and May this year plunged to $21.8 billion, 31.2 per cent down from a year earlier, and imports fell even more sharply to $32 billion, a 38 per cent drop. Foreign exchange reserves declined by nearly 17 per cent to $262 billion at end-May.

Employment has also taken a huge hit. Unemployment figures are poor estimates since 92 per cent of the workforce is in the “informal” or unorganised sector. On the ground, it is clear that millions of people have lost their jobs in gems and jewellery, textile, leather and small and medium businesses as well as automobile, tourism and transport sectors. Internal investment has plunged—growth in fixed capital formation declined from 12.9 per cent in 2007-08 to 8.2 per cent in 2008-09.

As an example of how carefully unemployment statistics need to be scrutinised, government figures show that employment in the organised sector grew from 26.73 million people in 1991 to 26.99 million in 2006. In other words, only 2.6 lakh workers were added to the workforce during these 15 years while the country’s population grew from 839 million to 1.12 billion.

Exactly how many people are out of work? The government estimates that the number of jobless totalled 36.7 million in 2006-07. It predicted optimistically that this would fall to 23.3 million in 2011-12. But that was before the global crisis.

Even when times were good, and the economy was growing strongly, Planning Commission figures show that unemployment rose from 6.1 per cent in 1993-94 to 7.3 per cent in 1999-2000 and 8.3 per cent in 2004-05. Unemployment among farm workers rose to 15.3 per cent in 2004-05. Growth in real wages of farm workers slowed down in the 2000s as agricultural growth decelerated.

Why is it critical for India to get its act together and put business back on track? If the external situation does not improve, the government has to find more revenue internally. The Economic Survey made a strong argument for disinvestment, saying the government should aim to raise at least Rs 25,000 crore annually from stake sales of up to 10 per cent of equity to the public. Mukherjee is aiming for a far more modest Rs 10,000 crore this year. The Survey also sets great store by the introduction of the General Sales Tax by April 2010.

Nowhere is the government’s failure to strengthen the foundations of the economy more evident than in the inexcusable delay in enacting world-standard legislations. The Companies Act of 1956 is due for a thorough cleansing and tightening, but amendments have risen and died in a succession of Parliaments. The Banking Regulation (Amendment) Bill 2005 is hanging fire. India’s taxation rules need urgent simplification, and Mukherjee referred in his Budget speech to the need to end “coercive tax collection methods”.

He also highlighted the newly set up Competition Commission: “The benefits of competition should now come to more sectors and their users and consumers.” He chose not to mention that the Competition Act of 2002 languished for seven years before becoming law.

(This piece appeared in Business Standard on July 12, 2009)

The Secret Life of the Manic Depressive Market

Not very long ago I watched a fascinating documentary by Stephen Fry on manic depression. I was reminded about the rollercoaster mood swings of people in that movie as I watched the markets on Budget Day. Panel after panel of pundits debated why the budget had not delivered the flavourful cocktail they thought the people had been thirsting for. Although the salaried class, senior citizens and women wage-earners benefited from some tax trimming, the consensus was that this was not a go-for-it reform budget.

Wait a minute – so the speculators and the day-traders and the swashbucklers were caught with their shorts down. Public memory is very short. People have forgotten that the Bombay Sensex rocketed 52.57 % between January 1 and June 30 this year. In comparison, the Dow Jones Industrial Average has actually fallen from 9034 on January 1 to 8447 on June 30. And China’s benchmark Shanghai Composite Index has also rocketed 71.6 % between January and June – but don’t forget that China’s much bigger economy is recovering faster than India’s – the OECD estimates that China will grow at 7.7 % in 2009 and 9.3 % in 2010.

So the journey of the Sensex this year can only be described as manic. Did the fundamentals merit this kind of irrational rise – or Monday’s depressive fall? India has been in the grip of a recession, just like the rest of the world.

Nobody really knows how badly the aam admi, the common Indian, has been hit – 92% of the workforce is in the “informal” or unorganised sector, so unemployment figures are poor estimates. Anecdotally, it is clear that millions of people have lost their jobs in the gems and jewellery, textile, leather and small and medium enterprise sectors. India does not also publish reliable bankruptcy figures.

Another indicator is the massive slowdown in industrial production, to 2.4% in 2008/09 from 8.5% a year earlier. Exports and imports both declined sharply; the trade deficit ballooned 35% to $119 billion, and foreign exchange reserves declined by nearly 17% to $262 billion at end-May.

Mukherjee listed several steps to aid exporters. But internal investment has plunged -- growth in fixed capital formation declined from 12.9 % in 2007-08 to 8.2% in 2008/09. External commercial borrowings dried up, capital accretion through the stock markets slowed to a trickle, and banks became much more reluctant to lend.

How many people exactly are out of work in India? We can try to piece the answer together from shards scattered in many places. The “Approach to the Eleventh Five Year Plan” (2007-12) said that unemployment rose from 6.1% in 1993/94 to 7.3% in 1999/2000 and 8.3% in 2004/5.

Unemployment among farm workers rose to 15.3% in 2004/05. Growth in real wages of farm workers slowed down in the 2000s as agricultural growth decelerated.

The Planning Commission estimated in 2007 that the number of unemployed totalled 36.7 million in 2006/07. It predicted optimistically that this would fall to 23.3 million in 2011/12. But that was before the global crisis. “This growing integration of the Indian economy with the rest of the world has brought new opportunities and also new challenges. It has made the task of sustaining high growth more complex,” Pranab Mukherjee said, almost ruefully.

Instead of bold changes in direction, the finance minister announced he would pump even more money -- Rs 39,100 crores ($8.3 billion) or a 144% increase over 2008/09 -- into the National Rural Employment Guarantee Scheme, which created jobs for 44.7 million people last year. This is going to be even more critical given that growth in the agriculture sector slumped to 1.6% in 2008/09 from 4.9% a year earlier.

So there may not have been breathtaking reforms, but there was plenty of stimulation, totalling Rs 186,000 crore ($39.6 billion) in 2008/09, and that pushed up the fiscal deficit to 6.2 % of GDP. That will rise further to 6.8% of GDP in 2009/10 – the finance minister proudly remarked that government expenditure will exceed 10.2 trillion rupees ($217 billion) this fiscal year, a leap of 36% over last year. That is going to be fuelled by a 50% rise in government borrowing. After his speech, Mukherjee told a TV interviewer that this was not too alarming because the U.S. fiscal deficit was likely to be 11% of GDP this year. Odious comparison indeed! A recklessly indebted government always crowds out other borrowers, and that can only have a long-term negative impact on manufacturing, services, and therefore exports. And that is why the Fiscal Responsibility and Budget Management Act, which requires the government to cap the fiscal deficit at 3% of GDP and to eliminate the revenue deficit, is so important.

Actually, as the RBI noted in its April policy statement, the combined Central and State fiscal deficits, plus special securities issued by the centre outside the market borrowing programme, will take the nation’s fiscal deficit to 10.8% of GDP. No wonder the ratings agencies are getting more and more twitchy by the day, and that Mukherjee said the challenge of recovery has to be shouldered jointly by the centre and the states.

“The deficit is too high and India cannot go on like this,” a senior international finance official told me. Alarming, he said, was the fact that the Reserve Bank of India had also flouted the FRBMA and started buying government securities again under the market stabilisation scheme – a dangerous spur for inflation. Intertestingly, the RBI’s April policy statement noted that the combined market borrowings of the central and state governments in 2008/09 were two and a half times the level in 2007/08.

Mukherjee said net market borrowings are likely to hit Rs 400,000 crores in 2009/10. In the first half of this fiscal year alone, the RBI has committed itself to purchase government securities under open market operations to the tune of Rs 80,000 crores. In the absence of a corporate-bond market, this means that “real interest rates” will be unrealistically high for companies who are getting muscled out of the debt markets by the government-central bank behemoth.

Mukherjee pledged to return to the “path of fiscal consolidation at the earliest”. But his ministry’s Economic Survey, published last week, said it might be time to go for an “FRBM-2” of zero fiscal deficits.

The stimulation cannot be denied – the Sixth Pay Commission is estimated to have pumped close to an additional Rs 117,000 crores ($25 billion) into government employees’ wallets since last October, and may have added 1.1 percentage points to GDP.

The OECD predicted last month that India’s GDP would likely grow at 5.9% in 2009 and 7.2% in 2010, after 6.7% in 2008/09. Mukherjee said the goal was to return to 9% growth. The stark reality is that India needs to grow at double digits if it is to address poverty, hunger, malnutrition, and illiteracy.

But the past year has laid to rest the myth that India’s “inclusive” economy shields it. Mukherjee referred in glowing terms to Indira Gandhi’s bank nationalisation 40 years ago as one of the bulwarks against global turbulence. “This is complete nonsense,” the international finance official said to me. “No Asian bank has run into any serious problems so why is India patting itself on its back? The conservatism of Asian bankers saved them.”

(This piece appeared in the Khaleej Times on July 10, 2009)

Ghosts in the Machine

I remember standing in long queues at ration shops in Calcutta, Madras and Delhi when I was younger. Lines for food were a part of everyday life. You got sub-standard rice and dirty, large-grained sugar. The majority of Indians lived on rationed rice, sugar, kerosene, palmolein and even cloth. My children are the first generation to not experience food rationing.

It is interesting that you see fewer queues in India today. But don’t think for a moment that we are a land of plenty. You see fewer queues because there are far more ghosts.

The Green Revolution did fend off famine, but the definition of famine is very subjective. I was reminded of the fragility of India’s food situation this past week as the clangour about the delayed monsoon began to get deafening. Sharad Pawar assured the people that there were ample foodgrain stocks.

Probably very true and comforting if you are talking to real people, not ghosts. The trouble is that our ration shops (there are half a million of them) supply wheat, rice, sugar and kerosene to a lot of people who don’t exist. The government estimates that there are 65.2 million people below the poverty line (BPL) and so entitled to rations of 20 kilograms of foodgrains a month at half the “economic cost”. But there are actually more than 80 million ration cards issued to BPL families. That is not all. The government has issued a total of 223 million ration cards against a total estimated 180 million households. In other words, there are at least 43 million ghost cards.

While writing this, I read about prisoners in one U.S. state who get only two square meals a day three days a week. “This is inhumane,” a newspaper editorial said.

Over here, the government says blandly: “A National Sample Survey Exercise points towards the fact that about 5% of the total population in the country sleeps without two square meals a day.” That is 60 million people.

The Antyodaya Anna Yojana aims to help the truly destitute by selling them up to 35 kilograms of foodgrains a month -- rice at two rupees and wheat at three rupees a kilogram. As of April 2008, the government had identified 242,755 “poorest of the poor” families.

The UPA government has taken power almost exactly midway through the 11th Five Year Plan. Next Monday, Pranab Mukherjee might want to address some of the concerns spelled out in the Plan documents.

“There are large errors of exclusion and inclusion and ghost cards are common,” the Planning Commission says, adding that “leakages” are common – higher than 75% in Bihar and Punjab. During 2003-04, it estimates that 8 million tonnes of foodgrains out of 14 million allotted to BPL families never reached them. “For every 1 kilogram that was delivered to the poor, Government of India had to issue 2.23 kilograms” of foodgrains.

These figures have almost certainly worsened over the past year as the economy slowed down. And this is happening at a time when foodgrain prices have been rising steadily, despite misleading data that shows that India’s official measure of inflation, the Wholesale Price Index, is now slightly negative. Although experts say the WPI is a more reliable, broader measure, the Consumer Price Index, which takes in what the aam admi buys every day, has put inflation at over 10 percent in the 2008/09 fiscal year.

Higher prices hit the poor hardest. Statistics show that in rural India, the poor spend close to half their incomes on food, and higher food prices are deepening malnutrition.

Higher prices also mean changes in food habits. Cereal consumption has been falling steadily in rural India – from 15.3 kg per capita per month in 1972-73 to 13.4 kg in 1993-94 and 12.12 kg in 2004-05. This would not have been alarming if the poor were consuming more of other foods like milk, meat, vegetables and fruits. Over a twenty-year period, the Planning Commission says, per capita consumption of calories and protein has steadily declined in India. The calorie norm for the rural poor was set at 2400 calories a day, and rural India’s calorie consumption has dropped to 2047 calories from 2221. (In urban India, cereal consumption has fallen less precipitously, from 11.3 kg in 1973-74 to 10.6 kg in 1993-94 and 9.94 kg in 2004-05).

No wonder one-third of India’s adult population in 2005-06 had a body mass index below 18.5, the cut-off for malnutrition, or that India accounts for about half the developing world’s low-body-weight babies, and a very high rate of anaemia among women and girls.

The new government has said it will push a Food Security Act. What those 60 million forever hungry people need is nutritious food, and clean drinking water. Pawar and Mukherjee have their work cut out for them.

(This piece appeared in the Times of India on July 3, 2009)