By Indranil Benerjie
The “gasping elephant” is how
HSBC, the global banking giant, described the state of the Indian economy. The
analogy could not have been more apt. It is easy to picture an elephant
struggling to pull an ever-increasing load piled on by the country’s cruel
political masters. The elephant is now gasping as well as flagging.
The problem is that the
elephant’s mahouts are unable to maintain equilibrium between its pulling
capacity and its ever-increasing load of budget deficits, subsidies and
freebies. The load has been growing faster and faster thanks to the culture of
free lunches nurtured by the country’s political leadership.
Every indication suggests that
the elephant is slowing, if not headed for a grinding halt. Latest economic
statistics show that the country’s growth rate has plummeted to 5.3 per cent in
the quarter January-March 2012, which is the slowest in nine years.
It is not only the ruling
coalition at the Centre that is alone to blame. The culture of freebies has
become a dominant democratic practice in India. Today, no political leader
wants to tell citizens that they must eventually pay for economic goods they
consume and, that too, at the real price of commodities like cooking gas,
diesel, petrol, electricity, cereals, fertilisers and so on.
State governments are unable to
provide their citizens roads, electricity, quality education and health
services. Instead, they woo them with free laptops, free electricity, saris and
free loans. Politicians are busy announcing one scheme after another to please
their potential voters; and they do not care how much it costs because in the
end it is the taxpayer who foots the bill.
So as budget deficits soar — it
is currently estimated at a whopping eight per cent of GDP for states and the
Centre combined — so does inflation; people have less to buy with their money.
The cost of free laptops, saris, subsidised fuel and cultural celebrations
eventually have to be paid by the nation as a whole and the poor end up
suffering the most.
But guile comes naturally to the
modern-day politician; eventually they make the state pay for their political
munificence and once in power reap profits for themselves. This is a hugely
successful business plan that has been replicated all over India by
virtually every political party.
The problem is that this cannot
go on for ever and every economy, just like Greece, must face harsh reality
sooner or later. The sad part is that ultimately it is the citizens who get
economically devastated. As politicians feed with one hand, inexorable economic
processes take with another.
A course change is virtually
impossible because the average Indian citizen has become addicted to subsidised
goods. Politicians know this and cynically exploit it for political gains. The
Opposition-sponsored anti-petrol hike agitation was yet another example of this
dynamic.
There will be political agitation
against the hike of every government-controlled price whether it is bus fares,
fuel prices or electricity tariffs; farmers will agitate if they are told to
repay their loans; commuters will burn buses on the streets if bus fares are
hiked and transporters will shut down if diesel prices are raised.
Politicians have not told
citizens that the country cannot produce enough fuel, that it must be imported
at high cost from abroad. They do not educate citizens about how excessive
spending by governments stoke inflation, which leads to interest rate hikes and
a consequent decline in business activity because of increased capital cost.
They do not tell students that the free laptop is not paid for by the political
party that was voted to power but by the bankrupt state exchequer.
Also, politicians do not explain
that unless people pay their electricity bills, regulate their power
consumption and agree on periodic tariff hikes, the country’s power producers
will not be able to sustain their losses, new projects will not come up and the
people will have to live with power cuts and its problems for ever.
Politicians do not reveal that we
are importing fuel and a whole load of other goods without being able to pay
for them, which is leading to an ever-increasing surge in demand for scarce
dollars.
Compared to the annual 20 per
cent growth in recent years, export growth after falling has picked up by a
mere 3.2 per cent. This has resulted in the rupee losing a quarter of its value
in less than a year, making all imports, including that of oil products, that
much more expensive. Not surprisingly, a senior RBI official declared that “if
the rupee is depreciating due to real sector issues, financial sector measures
will not solve it.” The rupee has been losing value against all the major
currencies, especially the American dollar, and has been judged the
worst-performing Asian currency.
The country is staring at a huge
balance of payments gap and is hoping that it will be plugged by foreign direct
investment (FDI) inflows of $70 billion. Problem is that global confidence in
the Indian economy is dwindling.
Reuters reported that “Standard
& Poor’s cut India’s
credit rating outlook in April to negative from stable, worried by its fiscal
and current account deficits. The decision jeopardises India’s
long-term rating of BBB minus, the lowest investment grade rating.”
It is not as if politicians are
unaware of the gravity of the situation. It is simply that politics today is
about coming to power by any means and staying there by any means, even if it
implies running the economy to the ground.
No matter what happens to the
economy, history has taught the Indian politician that none of them end up in
penury. The last politician who did was one of India’s forgotten Prime Ministers,
Gulzari Lal Nanda. This gentleman did not own any property and lived in a
rented house in New Delhi
from where he was evicted because he could not pay the rent and moved in with
his daughter.
Compare his post-retirement
condition with that of our top leaders and the picture becomes horribly clear.
The writer is an independent
security and political risk consultant.
Courtesy: Deccan
Chronicle
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