Ram Rajya

Ram Rajya

TIME magazine reports, in a snippet, that 47% of Americans can’t raise $2,000, in US dollars, in 30 days, without selling an asset. I dare say most of the middle classes in India, including the lower echelons of the descriptor, can find, or borrow, one solitary lakh of rupees in one month without liquidating any asset.

Of course, our poor, some 500 million souls, and almost the same percentage of our 1.25 billion population, can’t.

However, the comparison is between the richest country in the world, albeit going through a rough economic patch, and the second fastest growing emerging nation, going through its own political turbulence and governance deficits.

But then America is largely made up of wage-earners. These range from the mind boggling compensation of the business leaders to the millions of humbler folk living on weekly pay-slips. This is because some 3% of the American population actually own everything there, and in most other areas of American influence across the world. Capitalism has its advantages, but they are rarely spread evenly.

Another major difference between America and India is the sheer extent of national debt. India, with an economy hovering short of 2 trillion dollars has a large current account deficit, but it is still in single digit percentages. India also has a sizeable chunk of national debt, measured against GDP, and this is definitely in double digit percentages. Our off-book liabilities, such as those of various poorly run state power corporations, ad hoc “non-plan” expenditure and the like, are considerable. We probably owe at least one third to 40% of our GDP, when all of it is accurately admitted to.

This could have been higher, but partly because our infrastructure bottlenecks in electrical power, roads, trains, ports, airports, automation, health, education, methodology, etc. they collectively act to dampen confidence in our economy, and slow it down. Besides, we are growing at anywhere between 7% to 9% per annum nevertheless.

But America, the world’s sole super power is hardly growing now, but continues to do its borrowing in many multiples, not percentages, of its $13 to $ 15 trillion economy. Its national debt is reported at 64% of GDP, but add in all the off-balance sheet liabilities and it is more like 500% according to FORTUNE magazine.

Bob Rodriguez, CEO of a $16 billion money management firm First Pacific Advisors thinks there will be a debt crisis in the American economy within two to five years and that it will shake the global financial systems much harder than the financial crises of 2008. Rodriguez expects US Government borrowing to hit a wall of international under-confidence, sending global interest costs spiralling out of control.

America is the greatest debtor in the world, and China, alongside most of the other leading countries, including India, is its greatest lender. And the US dollar is the main currency of global trade.

So, if America, as a nation, goes through a debt burden crisis, it will be many magnitudes bigger than the 2008 one. It will hit most national economies, in a horrific domino effect. The answer, Rodriguez says, is fiscal belt-tightening now, not more and more borrow-and-spend policies to promote growth. But, many do not agree with this, citing the Great Depression of the 1930s when precisely this was done.

India, of course, goes too much the other way, ever ready to strangulate growth, citing inflation, but never really looking for efficiencies and modernisation as substitute strategies. So, we become World Bank/IMF/ Davos Summit heroes by default. But it is interesting to note that no other country wants to follow the Indian way nevertheless, lacking perhaps our sizeable domestic demand.

That we routinely sacrifice our destiny on the altar of fiscal prudence is cold comfort to those of us who want this country to first, for once, achieve its true potential, because that could heave us into a different shore and paradigm going forward.

Slowdowns hit the poorest hardest, and this is true of people and nations. But a recent book by Management Professor Upendra Kachru: India Land of a billion entrepreneurs, meditates entertainingly on how we have the largest number of shops and mobile hawkers, in urban and rural India alike, relative to our population, in the world. The book also comments that: “The way entrepreneurs operate, whether their strategy is attack or defence, differentiates them”. Indian fiscal policy, on the whole, is defensive.

This prudent stance may well be built into the national DNA. Traditional Indian business always emphasises the balancing of the daily cash books, with a bias towards income over expenditure. Our middle class can come up with a lakh because we’ve got it secreted away, in public sector bank savings accounts, in post-office savings, in ubiquitous PPF accounts, in life insurance policies, and even in the relatively new-fangled mutual funds with their open-plan formats and any working day deposits and withdrawals.

Welfarism, including the NAC variety, is largely, if not wholly, directed at the poor and the destitute, even as it infamously enriches the gravy train that leads towards them. Perhaps the Americans, long used to being on top, are habituated to spending every cent they have; but we cannot afford to, in any event. There will be no bail-outs for us because we at least have food on the table and a roof above our heads.

When the middle class in India has no money to fall back upon, given the less than dire nature of our needs, we are on our own, because the poor are much worse off, and even they have totted up over 25 lakh farmer suicides and counting!

Perhaps this lack of bold carpe diem, is a civilisational deficit, in a nation that boasts of 5,000 year plus traditions. Because, erring always on the side of caution, we don’t seem to have the guts to realise our full potential, not only just now, but at any time during our long story of survival.

Of course, this virtue of making sure we have a financial cushion, is partly due to our innate conservatism, our trust in gold and silver over currency, and the saving habit, that has only strengthened with greater prosperity after 20 years of the reforms process. The savings rate has actually gone up by over 10 % to about 32% of household earnings, instead of the other way around.

Another country that saves like us is China, and they’ve also been around for centuries through ups, like today, and not a few downs too. But just because they save, the Chinese don’t skimp on infrastructure, national security, or growth like us.

(1,102 words)

26th June 2011
Gautam Mukherjee


Published as Leader,Edit Page on June 30th, 2011, entitled "China's boon,India's bane" and online at www.dailypioneer.com. Also in The Pioneer ePaper. Archived under Columnists at www.dailypioneer.com