UPA leaves economy in a shambles

Rajeev Srinivasan

While China flaunts its Asian dominance in today’s world, India

has once again missed a golden opportunity to rise to economic
superstardom. Given the profligate spending of the UPA and its
self-proclaimed galaxy of economic geniuses, India is perhaps
back to the days of ‘Nehruvian Rate of Growth’

The current global crisis is potentially an inflection point that marks the
transition from an Anglo-American dominance to an Asian dominance in
world economic affairs. Certainly, there is a startling turnaround in the
fact that China holds $ 2 trillion in the US Treasury securities and,
therefore, lectures the Americans about running their economy — it feels
like only yesterday when the shoe was on the other foot. Another indicator
is China’s aggressive fire-sale purchases of commodities, including oil,
copper, iron ore etc from all over the world. “Have money, will buy” is
their mantra.

But where is India in this ‘Asian century’? Alas, India has once again
fumbled a golden opportunity to rise to economic superstardom. Given the
profligate spending of the UPA and its self-proclaimed galaxy of economic
geniuses, India now sports perhaps the highest deficit of any country:
About 13 per cent, a far cry from the 5 per cent that the UPA has been
promising us all along. Yet again, the Congress has successfully brought
India back to the verge of the ‘Nehruvian Rate of Growth’ of two to three
per cent, which is an economic crime against humanity, imposing abject
poverty on 250 million people. After almost 45 years of Congress misrule,
India has most of the world’s poor people, and some of the worst health
and nutrition indicators, even worse than much poorer sub-Saharan
Africa. This is truly a crime and a national shame.

It is evident that India’s wonderful ‘hybrid economy’ gives the country the
very worst of both capitalism and communism. For, when the world was
going through a capitalistic feeding frenzy, India, not being sufficiently
open to trade and capital flows, did not benefit. In contrast, China, taking
full advantage of its WTO accession, amassed a singular fortune, and
uplifted large numbers of its poor.

So India didn’t grab that opportunity. One would think, then, that the
obverse would be positive — that is, when the excess leverage hit the fan,
isolated India would not be affected very much. To some extent this is
true: Since India is a tiny trading power (accounting for perhaps one per
cent of world trade in goods), the precipitous decline in demand from the
West has not affected India anywhere near as much as it has hit China.
That is India as slow and steady tortoise to China’s flashy hare. In fact,
this is why commentators are crowing about the alleged virtues of the
dirigiste Indian state and its (usually deadening) hand on the levers of the
economy. In comparison to the formerly-lionised-and-now-reviled Alan
Greenspan’s laissez-faire Federal Reserve in the US, so the theory goes,
the virtuous RBI has been able to protect India from Anglo-American
buccaneer investment bankers.

If only that were more than a half-truth! The reality is closer to the way
Pay Commission reports are implemented in India — only half of the
recommendations is implemented. Pay Commissions routinely suggest:
(a) reducing headcount, (b) increasing working hours, (c) tying salary
increments to productivity, and, (d) increasing base salaries substantially.
Of course (a), (b), and (c) are ignored, and only vote-winning (d) is
implemented at large cost to the taxpayer.

Similarly, it is true that Anglo-Americans were unable to dump toxic

mortgages on the Indian banking system. Unfortunately, India’s
politicians, including an alleged ‘Dream Team’ of economics mavens, have
done the dastardly deed entirely on their own through almost Rs 200,000
crores of deficit spending, which will result in crushing inflation with a
vengeance in the near future. This in the name of programmes for the
‘common man’: Such as the NREGS, the waiver of farm loans, and the
windfall for bureaucrats.

The NREGS, on which the UPA lavished Rs 70,000 crore, should be

renamed ‘National Employment Guarantee Scheme for Party Cadre’,
because bulk of the funds, we can be sure, has benefited Congress
workers and sympathisers. A whopping Rs 70,000 crore has been spent
on waiving farm loans, most of which went to rich landlords already flush
with untaxed agricultural income that has led to a boom in consumption in
villages. On top of that, Rs 30,000 crore has been spent on the corrupt,
do-nothing bureaucracy. All this is money that the Congress printed out of
thin air.

Not to speak of the billions-worth of counterfeit currency introduced by

the friendly neighbourhood printing presses in Karachi. One ocean-going
container full of Rs 500 and Rs 1,000 notes from Pakistan — by all
accounts very good copies — was seized at Cochin port, which means
hundreds of other containers would have gotten through.

Thus, even though there is a deflationary trend — especially in real estate

after the bubble burst, and it too had been propped up the same
unaccounted-for money in the politician-civil servant-criminal nexus — the
long-term prospects are of raging inflation, as this money chase limited
goods.

Interestingly, the US is heading down the same path by announcing that it

will inject $1 trillion in the system via Fed purchases of long-term
Treasury securities. In other words, they too printed money. The reaction
was swift — the dollar tumbled, naturally.

Lost in all the hoopla about India’s inflation coming down to 0.44 per cent
recently is the fact that 12 per cent inflation for months has imposed a
high-watermark pricing on practically every manufactured good. Prices
have gone up by 50 per cent in many cases; they have stubbornly
remained there, and the chances of them coming down are nil. In India,
peculiarly, prices go up, but they never come down. This must be a
‘feature’ of the chimerical ‘hybrid economy’. The only things that have
come down are agricultural commodities like grain, and post-bubble real
estate.

Thus, once again, India has managed to snatch defeat from the jaws of
victory. China will go on to make it the ‘Chinese century’, and India will
always have unrealised potential. India’s curse, Jagdish Bhagwati once
observed, is its clever economists. This has been proven with a vengeance
in the last five years.