Shut-Down, Possible Default in the US & Rural Rescue At Home

Shut-Down, Possible Default in the US &Rural Rescue At Home

The longest monsoon in two decades is slated to result in farm production growth of 5.5%, up from some 1.9% last year according to a recent report in the Times of India.  A media savvy Governor Raghuram Rajan at the RBI has seized upon this information and projected farm growth at an average of 3.8% going forward. This, as opposed to 1.9% in the rear-view mirror, thereby adding its mite towards the raising of the country’s annual GDP- bottom-line, he is projecting over 6% for the next fiscal.

The truth is, these are projections, if true, that that won’t show results till well into 2014. But the Government, besieged with bad news on most fronts is busy playing up the likelihood of rural prosperity, fleeting as it might be, and only relative to context. It needs some sunshine on its damp squib of a poll plank creaking with anti-incumbency.

Combined with increased farm labour wages, due unfortunately to inflation, and high produce prices, due presumably to inefficient and corrupt distribution, it is estimated that the rural population will have 20% more money this year. And also that the farm production growth will add 0.5% to the country’s GDP.

Overall, GDP is widely estimated to end up at a low, varying from 3.8% to 4.8% or even 5%. Still, this half per cent from the farming sector will be most useful. Food prices may also come down but that depends partially on the rupee value and the price of imported fuel too, and may not happen before the general elections. Besides, will this rural bonus continue into the middle of the next year? Let us remember it is attributed to the unusual largesse of the rain gods this year.

Meanwhile, The United States drifts ever closer to a possible default on its debt obligations if the debt ceiling is not raised by US Congress by the 17^th of October. India is fretting about its $60 billion invested in US Securities, and China is worrying about its several trillion invested in the US Treasury Bonds likewise.

Some say the US Government is holding enough tax revenues to pay its interest obligations on its debt, but there are many other things, government and military personnel salaries and so on that will be affected. Besides it is alarming to the world’s monetary and economic systems to see its main mast wobbling like this.

The  ‘Shut down’, now over 12 days long has cost the US Government several billion in lost revenue at its parks and museums, in visa and passport processing charges, in back-pay for furloughed employees sitting at home and so on.

It is an extraordinary face- off between the Republican dominated Congress/ Senate and the Democratic Party’s President. Words like ‘polarised’ and ‘partisan’ are much bandied about, with very little give and take between the two major parties in the US.

The net result is a kind of ‘policy paralysis’ of its own, but the rest of the world is anxiously waiting for a resolution because if the US does default it will have catastrophic consequences around the world. It is relatively uncharted territory but more and more countries and their governments could succumb to ‘systems failure’ in a variety of imaginative ways.

While central bankers and finance ministers from around the world are buzzing about in Washington it is essentially a domestic play in which they are all no more than highly interested spectators.

A ‘default’ has not happened in the US apparently since the 1700s, meaning the early days of the republic, though a shut-down did occur, twice, in the nineties when the GOP took on the Clinton administration.  

That the Republicans should oppose ‘Obamacare’, which provides health insurance to the masses who cannot afford private medical insurance, to this extent of brinkmanship, is extraordinary and somewhat crude.

In India, by way of contrast, both the Congress and the BJP came together to vote on the Food Bill and the Land Bill as they were seen to be of benefit to the masses. The BJP said that both bills needed to go further, and that they were pledged to deepen and widen them if it came to power.

Clearly, our polarisation, for all its bluster, is not in the same league as their polarisation. And perhaps the most populous democracy in the world can give a tip or two to the richest one, on how to resolve contradictions and paradoxes.

Our Prime Minister mild-mannered, used to the slings and arrows of jeering colleagues, yet far from loquacious, would probably tell Obama that there is little mileage in cutting off one’s nose to spite one’s face.  It’s too bad he would probably have no occasion to speak to the far-right ‘Tea-Party’ elements in the Republican Party, who have been powering this confrontation. Meanwhile, the Afghan Taliban, that understands only the democracy of violence, is reported to be laughing at the Americans. Well it might. It cannot imagine such freedom to disagree with impunity in all its born days.

(837 words)

October 13^th, 2013

Gautam Mukherjee