The next Government will inherit the most troubled economy in two decades. No new Prime Minister would have entered office in such challenging circumstances, except Nehru in 1947 and Narasimha Rao in 1991
Speaking privately earlier this week, an erudite MP — from a non-Congress, non-BJP background —described the UPA Government’s binge of populist legislation as a “poison pill” approach. In management jargon, the ‘poison pill defence’ is deployed when a company is faced with a hostile takeover. The management of the company so targeted then takes deliberate measures to make the takeover unattractive. It commits to investments in areas where returns are unpredictable; it hands out huge salary hikes; it takes highcost loans. All this means the entity attempting the takeover will develop second thoughts or, if he or she or it pushes ahead, will be saddled with a huge burden.
In military jargon, the ‘poison pill defence’ would be termed a scorched earth policy. The Nazis tried it most infamously. As Joseph Goebbels, wartime Germany’s propaganda Minister, chillingly announced, “If the day should ever come when we must go, if some day we are compelled to leave the scene of history, we will slam the door so hard that the universe will shake and mankind will stand back in stupefaction…” Hitler took this to an extreme and wanted Paris burnt to the ground when it became clear the Allies were winning.
To be fair, the MP who used the ‘poison pill’ expression did not have historical analogies or European warfare in mind. He was referring to the almost deliberate strategy by the UPA Government to wreck the economy, make the currency markets that much more volatile and vulnerable to noxious sentiment, and leave the public exchequer with a huge, unsustainable bill from which easy retreat will be difficult. The next person in Government will find himself manacled by populist and self-defeating policies. For instance, the new land acquisition law makes any idea of a quick advance in Indian manufacturing, industrialisation and orderly urbanisation impossible.
Should any attempt be made to efface some of the legacy policies — provided, of course, there is no UPA3 Government and a sensible alternative has been elected — the Congress, its MPs and its fellow travellers will accuse the new Government of bad faith, of betraying the poor and of gross insensitivity. A propaganda offensive will be renewed and it will become difficult for the successor Government to take tough or dramatic steps.
This plan may or may not work. Who knows, if by some miracle the Congress is elected back to power, even the idea of it may not arise. Yet, it is a piquant and persuasive argument that this is precisely what the Congress is trying in the face of what it believes is a hostile takeover — by electoral means — by an enemy the likes of which it has not known. The hostile takeover is not feared from the BJP; indeed the manner in which the central leadership of the BJP has helped usher in the land acquisition and food security Bills would suggest the Congress treats it as an opportunity rather than a threat. The hostile takeover is feared from Mr Narendra Modi.
If indeed Mr Modi makes it to 7 Race Course Road, the Congress has ensured he will inherit the most troubled economy in two decades. Given India’s demographic mix and the sheer volume of young citizens looking for jobs — in absolute numbers, way more than the matching figures in 1991 — no new Prime Minister would have entered office in such challenging socio-economic circumstances, except Jawaharlal Nehru in 1947 and PV Narasimha Rao 44 years later.
Astonishingly, the magnitude of this crisis would appear lost on the establishment in New Delhi. Take the fall of the rupee. There are several reasons for the sudden and rapid decline of the rupee. It is a consequence of liquidity tightening in the US and of war clouds in Syria and the inevitable impact on oil prices. However, few can deny that there is a depletion of confidence in the Indian economy and Government and that this is contributing to the run on the rupee. Investors are not putting in their money; why blame foreigners, even non-resident Indians and resident Indians are holding back.
If the current account deficit is high, it is because rationalisation of energy prices was avoided for months on end, through much of UPA2’s first three years in office, to help Mr Rahul Gandhi present a happy, picture-perfect campaign in Uttar Pradesh. It didn’t work and the Congress got smashed in the State election of 2012 and only then did diesel prices start to go up.
The other item adding to the current account deficit — though in much smaller measure — is gold imports. Historically gold is a defensive investment that people turn to in times of war, crisis or uncertainty. If Indians are putting their faith in gold today, it reflects anxiety and lack of trust in instruments that are dependent on Government decision-making.
This writer does not have data to back the claim, but anecdotal evidence would suggest increasingly prosperity at the bottom of the ladder — including in rural India — is also leading to greater gold purchase. For all the talk of inclusive banking, the Government has done precious little to bring lower middle-class Indians into the matrix of financial instruments, bank deposits and mutual funds. Whatever extra they have inevitably goes into gold. Since the UPA is taking credit for increasing rural prosperity, shouldn’t it have anticipated the absence of formal investing and savings avenues in rural India — or even among the urban working classesIJ
To travel to other parts of India and to cities other than the capital is to experience two different universes. The sense of foreboding and the anger at the economic collapse, the price surge and the slow-murder of hope is so evident as to be terrifying. In New Delhi and its incestuous media and intellectual circles, the debates and the mood are far removed. They are surreal, if not delusional.
Every day, fellow-traveller intellectuals and Cartoon Network columnists come up with their crackpot theories. One newspaper report said the food security Bill would deliver a big push to the economy. Being assured of free food, people would use their surplus to buy consumer goods, increase demand and trigger a manufacturing boom. Another solemn editorial called upon Indians to celebrate the fall of the rupee, arguing it would boost exports. Pray, what is left to exportIJ After 10 years in power, we have a Finance Minister telling Parliament of the need to make India a manufacturing economy. In the interim, state-inspired activism and sabotage has placed obstacles in the path of India’s industrialisation. look at textiles, an area where India had huge advantages. Here even Bangladesh has made more impressive strides.
Make no mistake, the two populist legislations of the past week, the crippling of the rupee and stagnation of infrastructure and industry in the past decade are the equivalent of an economic Hiroshima. Remember how difficult it was to rebuild a broken Japan after World War IIIJ That’s the task that awaits Mr Modi or whoever comes in in 2014.
malikashok@gmail.com
