Mr Modi, bad marketing has its costs and the govt will have to pay for it - The Daily Reckoning
The Daily Reckoning by Vivek Kaul
On This Day - 17 February 2015
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Mr Modi, bad marketing has its costs and the govt will have to pay for it A  A  A

- By Vivek Kaul

Vivek Kaul
Over the last one month some speaking engagements have taken me out of Mumbai. While travelling, I have spoken to people from different strata of society-from drivers to waiters to economists to businessmen to investment bankers.

There seems to be a great belief among people that the Narendra Modi government is likely to make some difference in the life of an ordinary Indian over the next few years. I maybe merely stating the obvious here, but it will soon become clear why I am doing that.

The marketing and communication that has accompanied Narendra Modi's ascent to become the prime minister of India has been brilliant. Also, for the first time the message of economic development has been sold to people. The belief that this marketing and communication has created has stayed even after Modi has been in power for close to nine months.

But along the way some bad marketing has also crept in. Take the case of various leaders of the Bhartiya Janata Party(BJP) even taking the credit for bringing down oil prices. As a recent editorial in the Business Standard pointed out: "The president of the ruling party, Amit Shah, for example, repeatedly took credit on the campaign trail for lower prices, as did the Union home minister, Rajnath Singh. Even the prime minister has mentioned lower fuel prices, though he has specified that it is because of his "luck"."

In my conversations over the last one month I have realized that many people particularly in the lower strata, seem to believe, that the Modi government has brought down petrol and diesel prices. This is an impact of the bad marketing on part of the BJP. When I put this to a friend who works for a foreign brokerage house, he replied: "you market what sells". "And if people are believing in it, that means it's selling."

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Nevertheless that is just one side of the picture. The price of the Indian basket of crude oil on May 26, 2014, the day the Modi government was sworn in, was $ 108.05 per barrel. It fell by around 60% to $43.36 per barrel on January 14, 2015. This was the period when the BJP leaders were busy claiming credit for the fall in oil price, whenever an opportunity presented itself.

What they did not tell people was that only a very small part of this fall in price was passed on to the end consumer through a cut in the price of petrol and diesel. Take the case of price of petrol in Mumbai-the price fell by only 17.05% between end May 2014 and mid January 2015. The price of diesel during the same period fell by around 14.9% in Mumbai.

The primary reason for this discrepancy has been that the government tax collections have not been up to the mark. Take the case of indirect taxes (service tax, customs duty and central excise duty). For the first ten months of the financial year between April 2014 and January 2015, the total amount of indirect taxes collected went up by 7.4%, in comparison to the last financial year. The budget had assumed a 20.3% jump in indirect tax collections. And that hasn't happened. A little under one third of the indirect tax target still remains to be collected.

This slow growth in indirect tax collections has forced the government to increase the excise duty on petrol and diesel multiple times since October 2014. In the process it hasn't passed on the total fall in the price of oil to the end consumer.

There is nothing wrong here, a government needs to constantly look at its finances and make decisions accordingly. The trouble is that since mid January oil prices have started going up again. Between January 14 and February 13, 2015, the price of Indian basket of crude oil has gone up by 34.7% to $ 58.43 per barrel.

This increase in price has forced the oil marketing companies to increase the retail price of petro and diesel by 1.45% and 1.3% respectively, since February 16. If the oil price keeps going up, then the oil marketing companies will have to keep increasing the price of petrol and diesel. And this will put the BJP which had been claiming that the Modi government brought down the price of petrol and diesel, in a tough spot.

Those who believed that the government was responsible for bringing down the price of petrol and diesel, will now ask-if the government can bring down the price of petrol and diesel, it can also ensure that their prices do not go up.

If this belief starts to gain hold, then the government can be forced to hold steady the price of petrol and diesel, and in turn compensate the oil marketing companies for the under-recoveries they suffer in the process. This will lead to a lot of other problems, most of which the country has already suffered during the ten years of Congress led UPA rule.

Indian politicians have not marketed economic reforms (allowing listed companies to sell a commodity at its right price is also economic reform) at all to the citizens of this country. In fact, the spin that they have given to economic reforms has hurt this country.

Instead of claiming credit and saying that the Modi government brought down prices of petrol and diesel, the BJP politicians should have been telling the country why it is important to sell things at their right price. As Mihir S. Sharma writes in his book Restart- The Last Chance for the Indian Economy: "India has paid for politicians unable to talk openly about how economic reform is not just necessary, but beneficial, and not just beneficial, but right."

Such communication isn't very easy to dumb down, but that does not mean it cannot be done. It's just that nobody has bothered to try till now. What makes the process even more difficult is the fact that every time a ruling party loses a state election, it gets blamed on economic reforms or the fact that the other side promised freebies, which the ruling party did not.

Take the case of the recent elections in Delhi, where the BJP was wiped out. Political pundits took no time in saying that the BJP lost because the Aam Aadmi Party promised freebies. As Sharma writes: "From [Narsimha] Rao all politicians have inherited the ability to attribute every electoral reversal to economic reforms."

What we have seen till now is economic reforms by stealth. What is essentially needed is some proper communication on behalf of the government, where economic reforms can be explained in a simple way to the common man. That is the kind of marketing that is needed. And it would be great if the Modi government can get around to doing that.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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9 Responses to "Mr Modi, bad marketing has its costs and the govt will have to pay for it"

NANDAKUMAR M S

Feb 19, 2015

I understand (but not confirmed) that India had made pact with Russia for import of oil through rupee trade and this also contributed to the gulf oil glut and hence more price fall. if this is correct then Modi’s govt. can take some credit. Nevertheless the truth should be told to public at large so that false hopes are not created which will lead to bitterness.

Like (2)

sashikumar

Feb 18, 2015

India is not ONE INDIA. It is TWO INDIA. A small percentage of the total population can afford to join colleges by paying high capitation fee, can afford treatment in hifi corporate hospitals, can buy apartments worth crores and crores etc., etc.,. A larger percentage of the population expect the government to give them quality education, medical facilities, food and shelter at affordable rates. Unfortunately successive governments failed to provide that. To put it short the governments have failed to keep abreast with the changing economic conditions and aspirations of the vast majority in the country. Neta's always sit in the Ivory towers and lead the country through command and control. AAP is the only party which has created a perception that common man can connect with it. This is one of the major reasons for its resounding victory.

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sashikumar

Feb 18, 2015

Dear sir
No doubt, economic reforms are needed. but,before that we need electoral reforms, reforms in administration and judiciary. We have to prioritize these reforms first. what
is the point in treating the body when the head is insane.
we do not want intelligent people to rule us. we want honest people at the top.

Like (2)

shrikanth

Feb 18, 2015

Dear Vivek Kaul,

World Annual Oil consumption (2013) : 33 billion barrels
Drop in prices : 120-58 = USD 62/barrel
Hence Drop in World GDP = 62*33 = 2 Trillion USD approx
(It can be more if there is a drop in consumption also, it can be less as demand grows for cheaper products).
World GDP = 77 Trillion USD
Fall in World GDP : 2/77 = 2.6%

So if the crude oil remains at 50-60 for a year we can expect a fall in 2015, and perhaps an increase in 2016, unless SENTIMENT reverses looking at the GDP figures.

Can you enlighten.

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PRABAL BISWAS

Feb 17, 2015

We have so many non-elected PMs in our country , its becomes extremely difficult as to whom to believe and whom to follow.

Like (2)

Rajul Kothari

Feb 17, 2015

I do not agree with the analysis provided regarding % drop in crude basket and % price reduction. I think it would be fair to keep in mind that oil cos. would typically be sitting on 3-6 months of inventories in addition to forward contracts which they would have already signed maybe at the beginning of the downward cycle. Hence, the cost price for them may not come down immediately which leads to limited leeway to reduce prices for the end consumer. I would though agree that if this is indeed the case then the Modi govt has done a bad job of communicating the same to the informed masses. Secondly, you should also account for excise duty collected by the govt. in Rupee terms and not just % terms. Also, the quantum of price cut is almost double of excise hike. As a % of net price, it is probably lower than a decade ago rate.

The second important point which one can consider is that when the cycle reverses, govt. will have some cushion to maintain gross price to the consumer by cutting excise in order to prevent the rise from feeding into inflation. Also, on the reverse, hopefully, refineries would have locked into some good long term contracts at rock bottom prices.

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Sandeep Sahajpal

Feb 17, 2015

The core message (of good and bad marketing) is well captured, but one pertinent pointer here. When the prices of commodity (such as 'oil', which is very 'political' in nature) goes down, the prices for a hugely consuming country such as India does not go down in the same proportion. The problem is that we buy on 'long term contracts'. While these contracts do isolate us when the prices move up, these downturn does not materialise to its full extent for us. Yes, I assume that there must be some 'linkage' with 'market prices', but not to the extent that we benefit fully. These contracts are very-very knotted.

This is something I have not been able to make people grasp in last 3 decades of my career in commodities.

Yes, of course, India can get benefitted by such a drop by buying from open markets at the 'prevailing prices', but then the issue of storage and shipping, supply chain and many more do kick in. You or your colleagues have captured these issues also fairly well in another publication of yours. Once again, for a huge oil demand country like India, we can always buy our future requirements by way of 'future contracts', but such act is made difficult by media that propagate that prices will go to $20 a barrel. Now, who will be answerable if the prices do go there? I am sure that countries like China (where people running the country are not answerable public to such an extent, and media is non-existent) would have taken huge-huge advantage of this situation in Oil. Indian situation is far more complex than we can even imagine.

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Rashmin Shah

Feb 17, 2015

Let me clear myself first to you. I am not an admirer of any political personalities nor their leaders nor their parties. I am a voter of this country wishing everything good for me from the appointed ruler.
By default, it is a rule that , When the land is barren , it takes sufficient time to cultivate. But when it is spoiled it takes further more time to cultivate.
This article of yours talks ONLY about pessimistic approach to understand New Government.
I am sure , due to khauf or darr of Cong. , if UPA would have been in this situation, people would have uploaded them. Here we are spoiling the sense required to " wait for Good " principle. We are misusing power of expression.
When in our house , our father was passing through bad faze, we have supported him when he was saying " Please give me some time , I am trying to my fullest to get you better things. " And then we have never asked him " now how much time do you more need , Dad?" Due to only one reason and that is " TRUST IN DAD "

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ram mohan anantha pai

Feb 17, 2015

When an election result appear, people who loose always try to take shelter with one reason or other. In case of Delhi results, it is absolutely idiotic for RSS to blame Kiran Bedi or any one else to blame BJP. People of Delhi are not idiots to vote in such a massive way to AAP, yet if one goes by the vote analysis, BJP still maintained its 38/39%. This clearly gives a lot of interesting info for intelligent people to understand what exactly has gone wrong.
Unlike Vivek Kaul, I do not go by a few people's assessment ( as in the case of exit polls ), but by detailed reading of a lot of into and observation.

Any one who has been watching the exit polls even before election could see some happening there in Delhi. There were some channels doing almost daily polls and the fluctuations indicated interesting insights to think

1. while petrol prices by luck went down, prices of daily requirements of people like vegetables etc did not go down in Delhi as one understand.
2. While in 2013 election time, every party was offering onions at low prices, this time, no one took initiative to work on anything like that. Since BJP was in power at the center, people expected BJP to take charge of this situation where as probably, BJP ignored this thinking that Modi will save them.
3. Add to this the internal fights in BJP Delhi where people like Manoj Tiwari appearing on TV camera and making statements giving enough ammunition to opponents to say all was not well with in BJP.
4. Watch the face of BJP President who was defending Kiran Bedi - even though he did a "good job" of defending Bedi selection, his face was not lively (his emotions in mind was visible on his face - whether he liked it or not )
5. 6 Church attacks in 2014/15 were attributed to BJP/Hindutva fringe intolerance, even though not one was by any of the Hindutva elements. But both the church and opponents of BJP managed to exploit it creating an ill-feeling against BJP.
6. Ghar Vapasi - where people were converted "claiming to get ration cards etc" by fringe was very good contribution to bring down 12% votes of Muslims to 2% ! do you need anything more ?
Add to that the outbursts of people like Saakshi Maharaj, Sadhvi, Yogi Adityanath etc. What is their contribution - in any area - after Modi became PM? They could only repel people who wanted Modi to succeed !

It is very easy to say anything, but proper analysis needs time and effort.

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