Pain without gain

Pain without gain

No Government of a billion plus people can withstand the tens of thousands of crores of subsidy bill that fuel and gas subsidies entail. Not with the demand curve, and indeed the cost of imported petroleum crude, in ever rising mode. This move, controversial as it seems, may therefore be seen as pragmatic in a sea of “political” steps.

Political initiatives such as a rising list of massive welfare schemes and attempts to institute quotas for underprivileged sections. But this, without figuring out how to pay for them, or, in the case of the “Quota Raj”, how to address the blows it delivers to meritocracy.

The stock market, more or less moribund lately, jumped upwards. It likes any attempt to balance the budget because that is just “arithmetic”, as former US President Clinton said at the recently concluded Democratic Party Convention.

But another reason for its good mood may well be the US reiteration of policy commitment to an extremely low interest regime for the near to middle term. Mr. Bernanke, Governor of the US Federal Reserve, said the low interest regime will continue even as the US economy continues to recover. What a far cry this is to our own bias against economic growth!

Because, without taking care of both sides of the ledger, a fate, not a good one, awaits us. India’s erstwhile role model, the USSR, now  inhabits the pages of history for trying to put the theory of Communist egalitarianism into ham-handed and repressive practice. Little children call such a game “beggar thy neighbour” without realising they are talking about Communism in practice.

And ironically it was glasnost meaning “openness”, and perestroika meaning “restructuring”, that did it in because it was too little that came too late. The same fate could overtake the UPA II Government when it goes to the polls.

After all, ordinary people hate being told that they need to suffer the pain for a corrupt regime’s incompetence. But with The UPA’s very likely departure in 2014 or earlier, the successor Government can perhaps start setting things to rights.

The public outrage, and that of the Opposition, and even a number of the UPA Government allies, is thoroughly justified. Inflation, the very altar at which the Government has sacrificed growth since 2008 by raising interest rates and controlling both credit and money supply is going to soar as a consequence of this action.

The Government planning and economic systems have let it down in disastrous fashion. There is a great deal of concentration on the expenditure side of the ledger particularly directed at populism, rather than badly needed infrastructure for example, with a cavalier attitude to the income side.

The culprit appears to be the perennial Socialist hangover this Government seems to suffer from. It is influenced by the nearly Communist NAC, several staunch Leftists amongst the Congress Party seniors, other theorists and thinkers, who are all not keen on encouraging business and industry.

This even as the Government, probably a section of it, has announced a slew of FDI

(Foreign Direct Investment) encouraging measures to try and distract the public outrage and deflect some of its hostility.

But all the moves, such as FDI in retail and FDI in the airline business may have come too late in the day to show results before 2014. Besides, the domestic airline industry is awash in red ink and probably too sick to revive in a hurry. And FDI in retail may yet see a roll back due to all kinds of motivated opposition. A weak Government, forever dithering from pillar to post, is hardly capable of convincing anyone about its resolve to see things through.

An embedded hostility to the allegedly fraudulent “India shining” scenario is palpable in policy actions taken by the Government and its regulatory agencies; and consequently business and industry is either at a standstill or in recession.

Even the ever brash and hopeful housing and building sector, a haven for the investment of black money, is looking increasingly beleaguered. Demand has fallen. Inventories have risen. Transactions, as the broking community are fond of saying have become “less”.

Some observers are expecting a crash in the so called property “bubble”. If that happens, because of the Government strangling all growth and confidence, and with the monumental debt incurred by big builders, let alone the little ones, several major banks will also go belly up.

But the Indian Government, typically, does not worry about this kind of thing. Instead it has been busy collecting money hand over fist in a procession of scams one overtaking the other in heft and hue to fill its war chests. All the while promoting scheme after sponsored scheme to give away money to the poor and impoverished with a view to getting re-elected so that the party may continue.

It is true that a Government can always borrow and spend and that is exactly what ours is doing. It can also print more and more money. But since that is the road to bankruptcy there are occasional knee jerk reactions such as sharp increases in the price of diesel and cooking gas that will hit the middle class as well as business and industry. The diesel pump using farmer will be affected too, but he is being looked after by all the give-aways.

Every Government spokesperson piously claims the price hikes are a difficult step taken in the broader national interest. And of course, the most vocal apologists for the Government are reportedly about to be made ministers! But while they are still at it, what they are saying about the outrageous increase in diesel and gas prices, taken in isolation, may well be true.

But the attitude demonstrated is akin to someone eating a five star meal at an expensive eatery and confessing he has no money to pay thereafter. Our coffers are empty because we did not make due cause to fill them. The public cannot be blamed. It is the job of the Government made up of elected representatives to think of such consequences in advance and provide for them.

If over the next few days and months, the rising costs of living are actually assuaged with bold new initiatives in long pending reform, then the economy could become stimulated to grow again.

This, and this alone, will cover the multitude of our sins. Otherwise, in good Communist tradition, most of us, except the functionaries, party bosses, politicos, and the most manipulative amongst us, will have to become a great deal poorer and share in the misery imposed on us by a Government’s lack of vision.

(1,103 words)

15^th September 2012

Gautam Mukherjee