India’s Darkest Hour

Sibalomics, dodgy calculations and a country in economic morass. Is this India’s darkest hour before dawn?

ByAnand Ranganathan
India’s Darkest Hour
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“And in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.” – John Steinbeck, The Grapes of Wrath

Kapil Hiralal Sibal is a genius. His zero loss theory is proving out to be true, after all. Thanks to the Rupee devaluation, the $44 billion 2G scam is now a $28 billion scam. By 2016, with the rupee touching 200 to a dollar, the 2G scam will be worth a paltry 8.8 billion. And who knows, in 2020, with the UPA still in power, the Hyperinflation fairy will tap Rs 1,760,000,000,000 with her magic wand and turn it into one single tossable dollar in which we trust. Kaching!

You lookin’ at me? Don’t. It’s happened before: 4,200,000,000,000 German Marks to 1 USD in 1923 and 2,621,984,228 Zimbabwe Dollars to 1 USD in 2008, to mention just two examples from recent history.

The zero-loss macroeconomic devaluation has also reduced the infamous Bofors scam – that stood at $60 million in 1986 – to a manageable $7 million, a fourth of what Angelina Jolie charges per film. Not long before the exchange rate makes those lovely kickbacks vanish altogether.

Sibalomics has proved John Maynard Keynes wrong. “The long run” is actually a magical thing. It turns ravenously corrupt governments honest and, ultimately, into re-electable lal battis of virtue and integrity. One only has to wait a little while. Runaway inflation, spiralling devaluation, widespread corruption, rapid capital flight, rampant cronyism, stifling red-tape, unstable interest rates, reluctant World Bank, acute BoP, fingering IMF, mounting CAD, dude WTF – alright, not the last sordid acronym and its accompanying primer but you get the picture. We’ve been through the wringer before, yes we have. Hit us and watch us get up from the floor. Hit us!

What happened? Where is that shining Indian dream? And why has this become – to mangle a famous quote – a scamster’s finest hour and our darkest?

India is dying. Let the pallbearers at least shed the pretence. Any government under whose rule 830 million people live on Rs 20 day, 600 million have no access to a toilet, 400 million cannot read or write, 300 million cannot visit a hospital without pawning themselves, is a government not fit to rule.

Not a day goes by without our pink sheets reminding us of the deep anguish of those trying to make money for the country – the auto-makers of Gujarat, the jewellers of Rajasthan, the agro-entrepreneurs of Tamil Nadu, the IT start-ups of Karnataka, the textile merchants of West Bengal, or the handicrafts manufacturers of Madhya Pradesh.

Pink has turned red as India Inc gurgles bile. The capital is taking flight, unemployment is rising, car-makers are suffering huge losses, the BoP crisis looms large, inflation is rising, the IT industry is crumbling, Indian businesses are preferring to invest abroad, national banks are staring at disaster, the country faces acute coal shortage, FDI inflows have dried up, steel companies are fleeing, companies and media houses are laying people off.

That’s right – quarter-on-quarter our government touted magical GDP numbers that never once materialised. They told us not to worry – things will get worse before they get better. And we allowed all this to happen. We believed them.

Troubled economies never rally people like wars do. It is difficult to spot the enemy when it lies within. Halla bol against whom?

Meanwhile, what has the government been up to? Searching for prospective coalition partners, distributing free mobile phones and laptops, waiving off loans and – to top things off – drafting a food security bill that will cripple the economy further and raise our already massive public debt, which is currently 68% of our GDP or roughly $ 1.2 trillion. This, when our think-tankers and trailers profess corporate philanthropy as a solution. What is this – Objectivistic Socialism? Ms Rand meets Mr Drèze at Café Coffee Day?

Public debt is the thermometer of a nation; it warns us where to plant our next step – on soft ground or dog poo. We are drowning in debt and still we want to run flagship socialist schemes that will drag us under yet more debt. Well, whad’ya know, it’s been done before and from a position much worse than what we find ourselves in currently. But with a difference.

Allow me to explain.

Ravaged by World War II and having lost her crown jewel courtesy the naked fakir, the sun had not only set on the British it threatened never to rise again. The UK public debt as a percentage of GDP was an astonishing 200% (Figure 1).

Poverty was a bowl and a queue away, and everything – down to small hunks of bread – was rationed. And yet, that was the time when Britain embarked on massive welfare schemes like the National Health Service and a comprehensive schools and education policy. Indeed, in the few years following WW II, the debt rose as high as 270%. This wasn’t just a case of imbibing Keynesian theories or taking advantage of the Marshall Plan largesse, it was a conviction that, come what may, the nation will not surrender, it will get up from the canvas and dust its backside. What followed was a decade of unprecedented economic stability and growth.

Why did a nation burdened with such enormous debt decide to take on even more debt? More importantly, why did the money lenders of the world allow it to? One word: perception.

The world believed Britain when she said her future would be brighter, its people happier – debt today, credit tomorrow. Mind you, Britain is a strange example as those slimy sods were still busy looting large parts of the world that they had colonised. But talking strictly from the point of view of economics and perception, it is a valid one. How valid becomes clear when we look at the present state of Japan’s economy. It is in shambles. Public debt is the highest among all the nations of the world – 211% of its GDP. But – perception again – the world hasn’t written off Japan like it has Greece or Portugal. Japan’s credit rating (Moody’s) remains a top-notch Aa3 compared to Greece’s C. The world has confidence in Japan – that she’ll come through the tough times.

Greece, on the other hand, has had it. Figure 2 shows the Greek Public debt as a percentage of its GDP. It currently stands at 156%, dangerously high but still much lower than Japan’s. This hasn’t prevented the Greeks from pouring onto the streets, torching buses and public property even as their government – far from spending more on health and education like what Britain did in the late 40s – hastily abandons most public schemes and benefits. Plain and simple: Greece has been asked to shut its welfare shop by the moneylenders of the world.

Figure 2. The painful Greek Odyssey, public debt as percentage of GDP.
Data sourced from

Why has Greece stepped on dog poo while Japan on soft earth? Why is the world not confident of Greece’s ability to climb out of its present hole? Why can’t it allow Greece to keep borrowing?

Because Greece is the most corrupt country in Europe and is ranked 94 in the world, the same rank as India.

How can we appear confident to the world when we haven’t taken any steps to put our own house in order, when we are mired in corruption and wait for scams to vanish into thin air, when our black economy is an incredible 30% of our GDP (Greece: 24%; Japan: 8%, USA: 6.6%). We are a land where hawala capitalism thrives, where policies continue to be made for vote-bank politics, and where an incalculable amount of money is wasted deliberately and spitefully.

How can the world see the Food Security Bill as an honest welfare attempt when all our previous poverty alleviation and public distribution schemes have been abject failures and we have done nothing to stem the rot that has eaten them hollow?

We can no longer convince the world to keep lending us money. Like it or not we are the next Greece. We might have borne Kamdhenu – the wide-eyed cow goddess of limitless wealth – but it is America that has her now. There she grazes quietly, in a rolling meadow in Minnesota, her bells tinkling, her udders gushing endless reams of Fiat money that will keep America safe from the prying eyes of the money lenders – at least for the time being. Yes, much as we need her now, Kamdhenu is no longer ours. What we have, instead, is a hole, and a rat called Déjà Vu that lives in it.

India was in deep trouble in 1991. Most of us didn’t know it then but we were dancing on the edge of a cliff drunk and barefoot. Our foreign exchange reserves were barely enough to cover three weeks of essential imports. Left with no option, India mortgaged 67 tonnes of her family jewellery in order to secure a $2 billion IMF loan. A confidential World Bank memo laid bare the reasons for the 1991 economic crisis: Rocketing oil prices, internal conflicts, domestic problems, and acute political instability.

Do any of these ring a bell in 2013? Rocketing oil prices, internal conflicts, domestic problems, and the oncoming political instability aside, the economic indicators aren’t exactly a cause for cheer either: Current Account Deficit (3% in 1991; 4% now), Fiscal Deficit (8% in 1991; 6% now), population growth (2% in 1991; 1.3% now), Inflation (11% in 1991; 5.8% now), GDP growth rate (4.5% in 1991; 4.5% now), Annual currency depreciation (30% in 1991; 20% now).

The IT industry, that was non-existent in 1991, now contributes as much as 8% to our GDP. But it employs only 3 million people. Employment to GDP input ratio is the lowest among all sectors. Where are the jobs that the countless millions of us need? MGNREGA? How many ponds do you want Indians to dig?

The one thing that saves us from being pushed off the cliff is our Foreign Exchange reserve ($ 0.8 billion in 1991; $ 242 billion now), enough to cover for six months of imports.

Apocalypse? Not quite. These numbers don’t matter much to most of us who eat grass and mango kernels and don’t know where the next meal is going to come from. We are a cockroach nation. We will survive precisely because we are ghosts in the eyes of the Planning Commissioners. The Greeks are on the streets burning government property and uprooting phone booths. Their per capita income is $ 22,000. We earn 20 times less than the Greeks and yet there is calm.

Revolutions are not executed on empty stomachs.

So long as we earn 25 cents a day and shit in the open and walk miles for water and die eating midday meals and drink pesticide to forfeit bank loans and squat dazed and diseased on railway platforms and bus shelters, the Indian politician and his policy makers are safe.

But the moment our stomachs are full and our thirst is quenched and we choose someone from among us to stand for us and fight for our rights, that moment is when we shall drive away all our fears and awake to a new India. For the darkest hour is just before dawn.

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